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When an Oct. 3 regulatory filing showed that mogul John Malone had sold his remaining voting stock in Lionsgate, Wall Street started asking where the renowned dealmaker would put his money now. The billionaire investor dumped his stake in the company, with his international cable giant Liberty Global and Lionsgate chairman Mark Rachesky (via his MHR Fund Management) boosting their stakes to 4.9 percent and 22.1 percent, respectively.
While some argued that Malone’s sale was a cleanup exercise because he’d reduced his stake over time, others speculated that the move could open the door to putting the studio in play amid recent stock declines, given Liberty Global’s increased stake and Discovery’s (of which Malone, 78, is a large shareholder) 3.4 percent stake in Lionsgate.
“Is he really selling, or did he do this to get out of the standstill agreement he has with Rachesky and Liberty Global and Discovery, and he has a bigger agenda to acquire Lionsgate through Liberty Global and Discovery, or both?” asks one Wall Street analyst, who declined to be named. The standstill pact, basically a truce in a corporate M&A battle, came through assembling a 10 percent stake in Lionsgate via stock-swap deals between firms in his media orbit.
In contrast, Hal Vogel, CEO of Vogel Capital Management, suggests the media tycoon may have decided to sell as he sees no immediate upside to owning Lionsgate. “Malone recognizes that Lionsgate is not likely to grow fast or rise much in value over the short to medium term and that lots of folks have kicked the tires on this and decided not to bid high for it or at least not as high as management would like,” Vogel says. “So it seems he indirectly retains a relatively small interest, but probably does not expect much over next year or two.”
Given his reputation as an astute investor, “when John completely sells out, it is generally not a great sign,” echoes Pivotal Research Group analyst Jeff Wlodarczak, who argues that Malone’s stake sale allowed the other big shareholders to boost their combined voting power and fend off potential outside buyers who could take advantage of the 41 percent drop in Lionsgate’s stock this year. “Liberty Global was probably motivated by the fact that with Malone exiting and the big stock hit, there was a higher risk of an outside player making a play for Lionsgate,” he says. “
Whatever the next moves at Lionsgate, Malone has shown he’s still hungry for deals. “The last I knew, he was focusing on Latin America either through Liberty Latin America or Liberty Global,” media investor Dennis Leibowitz says. (Liberty Latin America early this year abandoned an offer worth a reported $7.6 billion for telecom firm Millicom.)
In line with that, Liberty Latin America, one of the companies in the Malone universe, on Wednesday said it has acquired AT&T’s Puerto Rico and U.S. Virgin Islands operations for $1.95 billion in cash as Liberty Global’s spinoff company expands in the region. The transaction will combine AT&T’s mobile assets with Liberty Latin America’s Internet and TV businesses in Puerto Rico and the U.S. Virgin Islands. One Wall Street observer suggested Malone could hunt for more overseas deals.
Malone, via Liberty Media, has also shown interest in building a vertically integrated platform of music and audio assets, says B. Riley FBR analyst Zack Silver. “They own around 70 percent of SiriusXM/Pandora, a third of Live Nation, and have a small equity stake in iHeartMedia, the largest terrestrial radio player in the U.S. There’s a chance that Liberty could increase its stakes in Live Nation and/or iHeart to attain majority ownership,” he explained.
Malone was earlier this year also reported to be considering a bid for MSG Networks. “But I see Liberty deepening its music keiretsu (a set of companies with interlocking business relationships and shareholdings) as more likely than a push into regional sports networks,” says Silver.
Liberty Global has about $11 billion in cash and along with Liberty Media is “always on the lookout” for new deals, emphasizes Wlodarczak. “They may wait to pounce until we enter into a recession, as they did successfully with SiriusXM and Live Nation. And judging by recent economic data, that could be sooner rather than later.”
This story appears in the Oct. 9 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
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