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Liberty’s War Chest: $4.5B

Malone Thinks ‘A Little Like A Hedge Fund’ 10/14/2012 8:00 PM Eastern

NEW YORK — After the dust settles with transactions involving its holdings in premium cable channel Starz and satellite-radio giant Sirius XM, Liberty Media could be sitting on a $4.5 billion war chest that could be used for acquisitions or to repurchase shares, company officials told investors last week.

At Liberty’s Investor Day meeting here last Wednesday (Oct. 10), Liberty chairman John Malone said the media giant was looking at all its options.

“In the short run, we’re probably going to think of ourselves a little like a hedge fund,” Malone said. “In the longer run we want to make strategic investments in growth cashflow businesses.”

Malone said Liberty has a list of possible targets that it continuously looks at and evaluates.

“Meanwhile, you just look for opportunities to get decent returns with the cash you’ve got on hand,” he said. “That’s kind of the posture that we’re in pro forma.”

Other potential uses for the cash could be repurchasing its own stock and acquiring a bigger stake in the companies it already has a less than 100% interest in, like home-shopping giant HSN Inc. and travel companies Expedia, Interval Leisure Group and TripAdvisor.

“We have a pretty good array of existing investments where it’s entirely possible to increase our stake if we think that is a superior return to shrinking our own equity, which is always the first choice if you can’t find anything better,” Malone said.

The Starz spinoff is moving ahead and should be completed by year-end, creating a standalone, asset-backed stock for the premium channel and a separate asset-backed stock for Liberty’s remaining assets, like the Atlanta Braves Major League Baseball team, satellite company True Position and minority stakes in several media companies.

The bulk of Liberty’s potential $4.5 billion war chest will come from Sirius XM, in which Liberty holds a 49.6% interest. Liberty has been making moves to gain control of Sirius — it asked the Federal Communications Commission in August to take outright control of the company — and has been acquiring stock on the open market for most of the year. Liberty CEO Greg Maffei said at Investor Day that the media giant has acquired 611 million Sirius shares on the open market for about $1.4 billion this year alone. Liberty acquired a 40% stake in Sirius in 2009 as part of a $530 million loan it issued the then-struggling company.

But Liberty expects to be paid back for the high cost-basis stock it acquired on the open market over the past few years. That repayment will likely take the form of a dividend, according to Pivotal Research Group principal and media and communications analyst Jeff Wlodarczak.

Once Liberty gains control of Sirius, it could spin off the company in a Reverse Morris Trust transaction, which would allow for a tax-free distribution of the Sirius stake to shareholders and a simplified structure for Sirius.

Maffei estimated that it would take Sirius at least 18 months to complete such a buy.

“We would want to get our capital out before we do a Reverse Morris Trust,” Maffei said, adding it is not a given that this is the path Liberty will ultimately take. “If it takes 18 months, that would be sort of a minimum.”

September