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Liberty Has Money to Burn

With as much as $10 billion in available liquidity after the planned spin of its Liberty Interactive unit later this month, Liberty Media is preparing to put that money to work, including acquisitions and share buybacks, chairman John Malone told an audience at its annual meeting of shareholders Wednesday.
Liberty has been trying to spin off Liberty Interactive - which includes QVC, Provide Commerce,, Buyseasons,, and interests in IAC/InterActiveCorp and Expedia - as an asset-backed security since June 2010.

Malone said that the spin-off has handcuffed Liberty to some extent.

"We've been pretty frozen by this split-off interregnum," Malone said at the meeting. "You can probably expect a lot more activity by us post the split-off. There are a number of things we would like to pursue, we have a lot of liquidity and it would be a very good time to do acquisitions on a levered basis. That's not saying we've got a bunch of them identified. Right now the cheapest thing around is our own stock."
The spin has been held up by a group of bondholders led by Bank of New York Mellon Trust that have filed suit in Delaware Chancery Court claiming that it constituted a disposition of assets and would harm debt holders. While the court ruled in May against the bondholders, they filed an appeal in June.
At Liberty's annual meeting of shareholders in Denver Wednesday, CEO Greg Maffei said a hearing on the matter is scheduled for Sept. 14, where Liberty hopes the original ruling is upheld. If that is the case, the spin would happen the next day.
Maffei said that after the spin Liberty will have about $8 billion "maybe as much as $10 billion if we really had to reach" in liquidity, which he intends to "invest wisely." That could be in several areas he noted, such as e-commerce opportunities, Liberty's own stock, acquiring or investing in new free cash flow generating businesses, or beefing up its existing positions in other businesses.
Asked if shareholders should expect Liberty to delve into companies outside the realm of traditional media, like its recent investments in book retailer Barnes & Noble, Malone said the goal is to invest in or acquire businesses where its management can have an impact. He pointed to investments in Sirius XM Radio, now the largest holding in Liberty Capital, that has grown from a $530 million investment in 2009 to an asset worth more than $6 billion today.
Malone said that over the years Liberty has grown and spun off a large range of businesses, including satellite TV giant DirecTV, international cable company Liberty Global, and cable programmer Discovery Communications.
"If we held on to them we would be the largest and most confused conglomerate in the world," Malone said. "The goal is not to be megalomaniacal. The goal has been to create long-term shareholder value."
Maffei commented on what some analysts have called a missed opportunity for the company's Liberty Starz unit in its decision not to renew its distribution agreement with Netflix. The old deal expires in 2012.
Maffei said that while he was confident Starz could have reached a renewal agreement with Netflix, he was concerned about the direction the video juggernaut is taking. Netflix recently restructured its pricing schemes to place more emphasis on online distribution of content.
Maffei said that a renewed deal would have forced Starz to pay overages to its content and studio partners and would have placed it in larger conflict with its traditional cable, satellite and telco partners - which he said pay Starz a collective $1.2 billion a year.

Malone added that the main conflict centered on the subrogation of brand identity and pricing control, issues that he said are hampering online delivery across the board.
"The way this cuts varies depending on whether you're a premium service as Starz, where ultimately the whole concept of sequential distribution of movie product or of originals has to go through various organisms in order to optimize valuation," Malone said. "Taking it all and dumping it in at wholesale on a random access basis really undermines long term perceived value. That's the biggest problem conceptually that we have with the Netflix approach toward distribution as a content investor or owner.
"This will sort itself out over time," Malone added. "There will be authentication, TV Everywhere by the distributors, there will be TV Everywhere, I think, by the content owners who will provide a supplemental service of random access over and above what their distributors do, perhaps on a wholesale basis, to authenticated customers. This thing still has a long way to go to play out. It's probably in the second inning in the U.S. and probably not even started the game internationally.
Despite that stance, both Malone and Maffei said that Liberty would not be among the potential suitors for online video distributor Hulu, which is currently for sale.
Maffei said the reported $2 billion price Hulu is asking is a bit hgh for Liberty's tastes and would be most worthwhile to companies like Google, Amazon, and Apple that are looking to push their brands into TV.
"That's probably not us," Maffei said