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Cable cheerleaders

Liberty bullish on Euro moves, posts rise in revs

NEW YORK — Liberty Media execs moved Tuesday to calm investors, who were clearly jittery at the company’s aggressive march into the debt-infested European cable biz.

John Malone’s Denver firm will soon own a big chunk of UnitedGlobalCom, whose major European subsidiary announced earlier in the day a hefty loss for the first half, layoffs coming in the second half and the resignation of its CEO. The subid, Amsterdam-based United Pan-Europe Communications, has seen its stock trashed this year and its debt swollen by rapid expansion.

“Our view is that UPC owns some very valuable businesses,” said Liberty CEO Dob Bennett during a conference call to discuss Liberty’s second quarter earnings. “Unfortunately,” he added, “we’re dealing with hugely skeptical financial markets.” He promised the deal structure doesn’t put Liberty’s capital at risk.

He said Liberty is hard at work with UGC and UPC on the numbers, but acknowledged, “There are no quick fixes or silver bullets. There’s no immediate obvious solution to make the investment community more comfortable.”

The UGC deal is likely to close this fall. Meanwhile, Liberty plans to close within a week or two on the purchase of another six German cable systems from Deutsche Telekom.

Both European moves illustrate Liberty’s strategy, as articulated by Bennett, of “building up scale so we can transform the nature of the business.” Its ability to do that successfully in the past has kept investors flocking to Malone.

Liberty’s revenue rose 34% for the quarter ended in June to $513 million. It swung to a hefty net loss of $2.1 billion from a profit the year earlier due mostly to its share of losses of affiliates. That’s a peculiarity of Liberty’s complex accounting since it’s technically an investment vehicle, not an operating company.

At its 49%-owned crown jewel, Discovery Communications, revenue rose to $481 million from $448 million and cash flow more than doubled to $90 million. The unit includes Discovery Channel, the Learning Channel, Animal Planet and Travel Channel in the U.S. plus a host of fast-growing international services.

Fully-owned Starz Encore saw revenue rise to $213 million from $177 million. Cash flow was up 25% to $69 million.

Given the soft economic picture, however, Bennett said full-year revenue targets may be hard to meet. He called the advertising market and the cable upfront, which is still dragging on, “sluggish and sloppy and not very attractive overall.”

Liberty shares fell 2.15% to $15.90.

Last Friday, the company officially split from AT&T and is now an independently traded entity instead of a tracking stock of the telcom giant. That was “a happy day for us,” Bennett said. It gives Liberty more financial flexibility and eliminates regulatory constrictions imposed by AT&T’s ownership of cable systems.

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