Deals give Malone tighter grip on TCI
Action an apparent response to stock purchase bid by Microsoft Corp.
The result of the deals is particularly sweet for Malone: He lifted his voting control of TCI to 40%-45% (from 21%) and receives $150 million for giving TCI the first right to buy his stock on his death or should he decide to sell out earlier.
TCI agreed to pay another $124 million for similar rights on stock owned by the estate of the late chairman Bob Magness.
All this was justified by TCI president Leo Hindery as protecting the interests of outside shareholders. "For a relatively modest amount of money a handful of shares could have left this company and shifted control," Hindery said, referring to a block of stock owned by the estate of the late chairman Bob Magness that was available for sale last summer.
Criticism expected
But TCI's move is sure to prompt some criticism on Wall Street as another example of deals designed to help Malone at the expense of the company. "How are the minority shareholders advantaged by this? They're already minority shareholders," said one investment banker.
"Looked at from a particular point in time, this is a bad transaction. But viewed through various negative scenarios, you can see the benefits," said Lehman Bros. analyst Larry Petrella. TCI stock closed up 6¢ to $28.37 Monday.
Hindery hinted that the agreement was prompted by an approach last summer from Microsoft Corp. and Comcast Corp. to buy the Magness "supervoting" stock -- which controls 21% of TCI's votes -- from the Magness estate. The approach was unrelated to negotiations occurring later between Microsoft and TCI for an investment by the software giant in the cabler.
At the time, Magness' estate was faced with massive estate taxes, which forced the estate's executors to try and sell the block last summer. In the end the estate decided on a convoluted transaction with TCI last June which effectively eliminated the super-votes attached to the stock and gave the estate $529 million, or $16.52 per share, for the block.
That deal prompted litigation from Magness' family against the executors, however, partly because TCI's stock price has skyrocketed roughly 70% since.
Half of June deal canceled
To settle the litigation, TCI agreed to cancel half of last June's deal. That leaves the estate with half of the supervoting stock it started with, while TCI retains control over the rest.
But the estate agreed to give Malone effective voting control over the stock it keeps. TCI said in a statement that "the Magness interests and Dr. Malone will enter into a shareholders' agreement which will provide that they will act as a single group," although Hindery told reporters that Malone would vote the Magness stock if the two sides disagree.
TCI also agreed to pay both Malone and the estate for the right to buy their supervoting stock before anyone else. TCI promised to pay a 10% premium over the market price for the stock and gave Malone $150 million and the estate $124 million for agreeing to this part of the deal.
Hindery argued on the media conference call that TCI realized over the past few months, in an implicit reference to the Microsoft approach to the Magness estate, that representatives of an estate have to accept "to the highest bona fide offer but there was no involvement by the company in that process."
Hindery said this would hurt ordinary shareholders because someone could buy the supervoting stock and not have to buy out ordinary stock to get control.
"What we have done is shift all the prerogative related to the supervoting shares over to the company," he added.
Hindery refused to comment on whether Microsoft had approached the Magness estate but he confirmed that an approach was made. "During the summer it became clear that control of this company could have moved outside the company," Hindery said.
Absolute control would not have passed, however, as the Magness estate has in total less supervoting stock than Malone (who owns more supervoting stock in TCI affiliates like Liberty Media and TCI Ventures). A spokeswoman for TCI conceded this point later but insisted "there were control issues."
In a statement, Magness' sons Kim and Gary said "this is what Pop would have wanted. We have a significant block of the TCI stock back, we have added significant value to the Estate, and we can now continue to participate in our family's legacy."
Malone said in the same statement that "this settlement underscores the commitment to TCI that is shared by all the parties."
