Malone effectively invented the cable TV business in the U.S. Since then, he has bought and sold many businesses, and usually in a manner that does not result in any tax liability for either him or his shareholders.
Malone has traditionally played the long game with investing. He will either purchase most or all of a company that is generating significant cash flow, and then (like Buffett) leave management alone. He will then use the cash flow of those businesses to draw down debt at extremely favorable rates, and utilize the cash to repurchase shares of his company or to buy other businesses.
In other cases, he will swap stakes in one large public holding to get a stake in another – usually because he wants to use the stake in the new company as a bargaining chip to acquire an even larger business.
Telecom is his home world, so there’s been frequent speculation that his Liberty Global (NASDAQ: LBTYA) would purchase Vodafone Group (NASDAQ: VOD), the U.K.-based wireless phone company. Malone hadn’t spoken much about a potential merger until last week, when he told Bloomberg News that Vodafone would be a “great fit” for Liberty Global.
Liberty Global is the largest international cable company, with over $18 billion in revenue and 27 million customers in 14 countries. Its consumer brands include Virgin Media, among many others, but its wireless assets are somewhat limited in Europe.
Despite $36 billion worth of European cable acquisitions, Malone is eyeing the increasing usage of mobile technology, and likely wants to grab a big wireless player to complement his existing services. Without owning a wireless network, however, Malone would have to pay fees to access the networks owned by others.
Why pay others when you have a gazillion dollars to buy your own?
Some say that Malone may be playing coy when he references Vodafone’s operational strategy as being different from Liberty’s, calling the former’s “low leverage, low risk and high shareholder payout,” while referring to his own as “growing equity value.”
Critics are wrong. Malone is all about building equity value and delivering value to shareholders by giving them shares every time he spins off a new tracking stock.
The other speculation is that it would be Vodafone that would purchase Liberty. It seems unlikely that Malone would approve a “merger of equals” without holding a controlling stake in his baby, but there are rumors that Vodafone will shed some international assets to raise cash for a purchase.
Vodafone has an enterprise value of $85 billion, whereas Liberty Global has $60 billion in enterprise value, so a merger would not only be gigantic, it could attract the attention of European Union regulators. That’s yet another reason why Vodafone might want to divest itself of assets.
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