Malone Seeking Consolation Prize After Second Deal Defeat

Feb 14, 2014 3:46 am ET

(Updates with Liberty Global earnings in 14th paragraph. For more stories on the Comcast-TWC deal, EXT2 <GO>.)

Feb. 14 (Bloomberg) -- John Malone is getting used to losing.

The investor, dubbed the cable cowboy as he spent almost $50 billion consolidating Europe’s pay-TV businesses, was outmaneuvered for the second time in eight months after Comcast Corp. trumped his bid for Time Warner Cable Inc., agreeing to buy the second-largest cable company in a $45 billion deal. In June, Vodafone Group Plc beat out Malone’s Liberty Global Plc for Kabel Deutschland Holding AG with a $10 billion offer.

The 72-year-old’s latest defeat was set into motion last week when his Charter Communications Inc. overplayed its hand in negotiations with Comcast to buy Time Warner Cable in a joint takeover. Charter refused to give in to demands to divest more assets to Comcast and to accept payment in stock, according to people familiar with the cable operators who asked not to be named because the talks were private. The disagreement pushed Comcast to seek its own deal, outbidding Charter by 20 percent.

The loss of Time Warner Cable is a setback for Malone, who was seeking to make a comeback in the U.S. cable industry, which he had largely exited in 1999 when he sold Tele-Communications Inc. to AT&T Inc. for $59 billion.

The Colorado-based billionaire, whose cable cowboy nickname became the title of a biography, is now left with smaller takeover options such as Sirius XM Holdings Inc. in the U.S. and Grupo Corporativo ONO SA and Com Hem AB in Europe.

‘Bloody Noses’

“He’s gotten a few bloody noses,” said Steven Hartley, a London-based telecommunications analyst at Ovum Ltd. “I think it just means he’ll be more aggressive in getting assets and paying more.”

Comcast’s advisers were surprised Malone didn’t take a more aggressive approach in his effort to secure profits from its run at Time Warner, according to a person familiar with the matter who asked not to be identified. Neither Charter nor Malone himself bought a big block of Time Warner Cable shares even as Charter’s pursuit of the company helped send the stock up 70 percent since the end of May.

While Charter is unlikely to match Comcast’s bid, the company may have the chance to snap up some customers as Comcast plans to divest about 3 million subscribers to keep the combined company’s market share below 30 percent. Comcast is willing to sell those customers to Charter, another person said.

Sirius Shares

Liberty Media Corp., another Malone unit, offered to buy Sirius XM last month and the billionaire will continue to pursue the purchase of remaining shares, said Keith Moore, an analyst at MKM Partners.

Courtnee Ulrich, a Liberty Media spokeswoman, couldn’t immediately be reached for comment.

Meanwhile, Europe has plenty of cable assets for Malone to corral, with thousands of providers across the 28-member European Union versus a handful in the U.S. And while more than 90 percent of Americans have pay-TV, only 41 percent of Europeans do, according to Ovum, making the market ripe for bundled offers of Internet, phone, and programming.

Last month, Malone’s Liberty Global Plc, based in London, expanded its European footprint with the 4.9 billion-euro ($6.7 billion) purchase of Dutch broadband provider Ziggo NV. With Ziggo out of the way, Malone could look next to Ziggo’s neighbor, Belgian cable operator Telenet Group Holding NV, in which Liberty Global owns 58 percent. Telenet investors rejected a 2 billion-euro bid from Liberty Global for the remaining stake last March.

Seeking Opportunity

“One always has to bear in mind Liberty is quite opportunistic, so when they see a chance they go for it,” said Marc Hesselink, an analyst at ABN Amro in Amsterdam.

Liberty Global reported sales that missed estimates yesterday and a decline in operating cash flow from its British and Dutch businesses. Fourth-quarter sales were $4.47 billion, falling short of a $4.58-billion estimate by analysts in a Bloomberg survey. In the U.K., Virgin Media Inc. had higher programming costs and some non-recurring items, while the Dutch market may “remain challenging” in 2014, Liberty Global said.

Growth Forecast

Europe’s cable and satellite operators are expected to grow about 15 percent on average this year, driven by acquisitions, according to data compiled by Bloomberg Industries. Sales growth excluding deals is forecast to be about 4.8 percent, slower than the 6 percent to 7 percent growth over the last three years.

Spain’s ONO and Com Hem of Sweden are both initial public offering candidates. Vodafone has also approached ONO for a possible acquisition, people familiar with the matter have said.

Discovery Communications Inc., in which Malone has 29 percent of voting rights, last month said it will raise its stake in Eurosport, making it more competitive against British Sky Broadcasting Group Plc and BT Group Plc in bidding for TV sports rights.

“John Malone is not going to go hungry,” Ovum’s Hartley said. “His strategy around cable consolidation is only one part of a slightly bigger puzzle, and the money he’s saved from not buying Time Warner Cable he can spend here in Europe.”

--With assistance from Cornelius Rahn in Berlin, Amy Thomson in London, Elco van Groningen in Amsterdam and Jeffrey McCracken and Alex Sherman in New York. Editors: Mark Beech, Kenneth Wong