Sun Valley: John Malone Spills About ‘Frenemy’ Sumner Redstone, Lionsgate and Starz Merger

Twenty two years ago, John Malone and Sumner Redstone faced off in a bidding war for control of Paramount Pictures. It was a battle in which Redstone ultimately prevailed, and the two media moguls have had a frequently combative, occasionally collaborative relationship over the past two decades.

On Thursday, Malone brushed aside past differences, telling press at the Allen & Company media conference in Sun Valley, Idaho, that he had sympathy for the legal battle engulfing Redstone’s empire.

“I’m hoping that all settles down and everybody is treated fairly,” said Malone. “Sumner’s been a longtime friend and sometimes partner and sometimes frenemy. You hate to see the stress of a family situation. I certainly hope it all works out to everybody’s benefit. They created some great assets over the years and they’re a very important part of our industry.”

Sumner Redstone’s daughter, Shari Redstone, is at the exclusive gathering of moguls and investors. So far, however, there has been no sight of Philippe Dauman, the chairman and CEO of Viacom, the company the owns MTV, Paramount and Comedy Central, among other assets. As her father’s health declines, Shari Redstone has been trying to oust Dauman. Their fight is playing out in a series of court room battles in several states.

Malone said that he was not interested in buying a stake in Paramount or purchasing the studio outright if it comes loose.

“They’ve got some great assets and right at the moment, because of the turmoil, they’re substantially undervalued,” he said. “I think they’ll straighten it out.”

There’s also been speculation that Viacom might eventually merge with CBS, the publicly traded television company that the Redstone family also controls. Malone said that if that were to happen, CBS Chairman Les Moonves would do a “terrific job” running the combined company, calling him an “excellent operator.”

Malone hit the ski resort a week after helping orchestrate a $4.4 billion deal to pair Lionsgate with Starz. The billionaire controls Starz, the cable company behind “Outlander,” and has a stake in Lionsgate, the maker of “The Hunger Games” and “Orange Is the New Black.” He is also a Lionsgate board member.

“This gives them the opportunity to be bigger,” he said. “Be a little more aggressive in investing in content. Try new things. “

Malone said he was primarily interested in Lionsgate because of its television operations. That’s been a source of stability as the company has struggled in its other operations. The studio has suffered a number of film flops recently, including the action epic “Gods of Egypt” and the Johnny Depp comedy “Mortdecai.”

“The question is can you tame the movie business to reduce the volatility?” Malone said.

He went on to argue that merging with Starz gives Lionsgate a distribution pipeline for its films and shows that will improve its revenues.

“Theatrical is a tough business and you can run hot and cold,” he added. “And we know that. One of the nice things of the combination is it reduces volatility so it gives them a stronger base, more predictability, ability to take longer term bets and frankly to retain a longer term interest in the creative assets that they produce.”

Some analysts have questioned the amount of debt that Lionsgate is taking on to purchase Starz. After merging, Lionsgate will carry  a debt ratio of five to five and a half times earnings.

“There’s no question that the deal starts off fairly levered,” said Malone. “On the other hand, interest rates are remarkably low these days, so you have to look at the ability to service debt.”

He also wouldn’t rule out bringing on an investor at some point.

“If they needed equity there are substantial strategic players who would be interested in owning more of this company,” said Malone. “There’s plenty of room should the company need more capital.”

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