Liberty tastes it all, but will Malone bite?

Dealmaker's next move may be coming soon

NEW YORK — It’s been said that betting on John Malone’s next move is a license to lose money. But with the stars so seemingly in alignment, it’s hard to resist a chance to puzzle over whether the gladiatorial dealmaker is preparing to re-enter the arena in a big way.

Wall Street watchers seem convinced that the media biz’s own Warren Buffett is ready to change Liberty Media’s course from being a holding company to a real operating company — and a programming company at that.

With a finger in virtually every piece of the media pie Malone is linked to every deal in Tinseltown and beyond. And there are certainly plenty of deals for the cash-rich, tax-averse Malone to choose from.

This month Malone may get the chance to buy control of QVC, he’s raking a fine-tooth comb over satcaster DirecTV, and he’s rumored to be in machinations with Barry Diller to buy all or some of Vivendi Universal Entertainment.

Malone is also still sitting on 50% of Discovery and Court TV, among others, has been busy upping his cable position in Japan and was twice frustrated in German cable.

Meanwhile, Malone’s Byzantine web of holdings trades at a steep discount to its total asset value, it’s got tax losses it’s not using efficiently, and it’s got $3 billion of cash in the bank.

It’s been a few years since the dealmaker formerly known as cable king orchestrated his last big coup: selling his TCI cable kingdom to AT&T for a bundle, then exiting the venture with the choice programming assets of Liberty Media happily intact.

But much has changed for the head of Denver-based Liberty in the past three years, starting with his company’s wilted share price.

Though Liberty’s holdings are masterfully hedged with $5 billion worth of sophisticated puts, calls and collars, the company’s shares lost 35% of their value over the last 12 months.

The company is frequently criticized for better resembling a tax-efficient hedge fund than an operating media company. There are some 47 private and public companies in Liberty’s global media/telecoms portfolio (a testament to Malone’s preference for taking stock in lieu of cash deals), only around nine of which are majority-held.

Analysts say Liberty’s just too darn confusing for most money managers.

“He’s so focused on tax efficiency that the company has lost sight of its strategic direction,” says one New York-based fund manager who believes that unless Malone starts monetizing some private assets like Discovery, the company can’t unlock value.

The company insists it has no intention of selling any big pieces of its sprawling empire, and it is actively buying back its own stock to exploit the perceived undervaluation.

But Liberty also has been building a war chest and last week hinted it might sell its 4% (hedged) stake in AOL Time Warner.

The most immediate transformational deal at hand is home-shopping net QVC, valued at around $13 billion. Malone triggered the exit clause on Liberty’s joint venture with Comcast earlier this month, and a Liberty exec told a recent investment conference that it thinks QVC is a fantastic asset and wants the chance to buy out Comcast’s 58% stake in the home-shopping net.

Liberty has good reasons to seize the reins at QVC, including a chance to use some $2 billion in net operating and investment losses to shelter the home shopper’s prodigious profits. It would also fend off SEC concerns that Liberty should be reclassified as an investment company.

But even with a growing cash pile, to orchestrate a truly gigantic deal of Viv U proportions or attempt multiple buys like QVC and DirecTV simultaneously, Malone would have to liquidate some of his holdings and — god forbid — pay taxes.

Don’t bet on it.

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