Liberty on offense

$270 million on table in stock buyback plan

NEW YORK — Liberty Media Group, the programming affiliate of cable giant Tele-Communications Inc., launched a $270 million tender offer Tuesday to buy back 4% of its outstanding stock.

Liberty is offering to buy 10 million shares at $27 a share, 13% above Liberty’s market price. News of the unexpected tender sent Liberty’s price climbing $1.75 to close at $25.56.

The tender is designed to accelerate Liberty’s previously announced stock buyback, under which the company said it would repurchase as many as 55 million shares. During a conference call, Liberty CEO Robert Bennett said, “We think it’s a good investment to buy back these shares.”

Bennett said the tender was launched because Liberty hadn’t been able to buy stock “in significant volume and we thought this was a more effective way to acquire shares.” In recent months Liberty has bought only 800,000 shares on the open market although it bought 6.7 million shares for $25 a share from Kearns-Tribune after that company was acquired by TCI last month.

To finance the tender offer, Liberty will use $170 million in cash and will tap a $500 million credit line it has established, Bennett said.

Analysts said the tender offer is a sign of management’s confidence in the company. Schroder & Co. analyst Niraj Gupta said Liberty decided to buy its own stock, at seven to eight times cash flow, rather than paying 15 to 16 times cash flow for outside cable programming assets. Cash flow is earnings before interest, taxes, depreciation and amortization.

But the price Liberty is offering in the tender raised some eyebrows. Lehman Bros. analyst Larry Petrella said that “it is unorthodox to announce a tender offer at such a premium” to the market price, although he added that it is “a very bullish statement” by company management.

News of the tender was released along with Liberty’s detailed second-quarter financial report, although TCI had released Liberty’s second-quarter result last week. Liberty earned $7 million in the quarter on revenue of $60 million, compared with a $4 million profit on revenue of $322 million a year earlier.

The dramatic drop in revenue reflects a reshuffle in many of Liberty’s holdings, such as the sale of Liberty’s sports cable interests to a joint venture with News Corp. last year.

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