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Vigorous Liberty on the Prowl

3/30/2003 7:00 PM Eastern

Strong performance from its Starz Encore Group LLC and Discovery Communications Inc. programming units has put Liberty Media Corp. on the acquisition trail, president and CEO Dob Bennett told analysts last Tuesday night.

Bennett reiterated the Denver-based media giant's interest in DirecTV Inc., acknowledged that Liberty has had discussions with Vivendi Universal S.A. regarding the latter's Vivendi Universal Entertainment assets, and said the company has continued negotiations with Comcast Corp. regarding its stake in cable shopping channel QVC Inc.

But Bennett appeared to backtrack a bit from comments Liberty chairman John Malone made to the Reuters news service last Monday. Malone said that if Liberty were involved in a purchase of direct-broadcast satellite provider

DirecTV, it would be as a short-term investment.

Bennett, on a conference call with analysts discussing Liberty's fourth-quarter results, said that's how Liberty looks at all of its investments.

"We could be a long-term holder, we could be a short-term holder," Bennett said. "If another company was a more logical buyer after Liberty had owned the asset for a while, Liberty might sell the asset," he said.

However, he added: "I don't think that's necessarily the only outcome or necessarily the likely outcome. That's one outcome."

Bennett also reiterated Liberty's interest in VUE, which includes cable channels USA Network, Sci Fi Channel and Trio, as well as Universal Studios and Universal Music Group.

"I think there is a potential logic in us trying to find some way of working with the VUE assets," Bennett said. "Given our ownership of Starz Encore, we think there's a lot of potential synergy and scale-creation between that network and some of their assets, including their cable networks and their studio. And that's a conversation that we continue to be having with Vivendi."

Liberty has also continued to talk to Comcast about its stake in QVC, Bennett added. It informed Comcast on March 3 of its intention to reorganize the partnership and could possibly sell its 42.5 percent stake in the network to Comcast, or buy out the Philadelphia-based MSO's 57.5 percent interest.

Both parties have until March 31 to come up with a fair-market value for the network. If no agreement can be reached, then independent appraisers will be hired to value QVC. Comcast has the first right to buy Liberty's stake.

If Comcast turns down the option, Liberty can buy out the cable operator's interest. If neither company wants the network, it would then be sold to a third party.

The acquisition talk seemed to overshadow what was one of Liberty's strongest performing quarters, with cash flow at its two core operating businesses — Starz Encore and DCI — up 34 percent and 27 percent, respectively.

Starz Encore revenue increased 2 percent to $228 million, and cash flow was $102 million. Discovery revenue rose 24 percent to $433 million, fueled mainly by strong advertising sales. Cash flow at Discovery was $142 million for the quarter, up from $112 million in the same period in 2001.

Liberty said Starz's revenue would be flat in 2003, primarily because of its ongoing rate dispute with Comcast Corp. Earlier in the month, Liberty said Starz would take an $80 million revenue hit because of the Comcast dispute.

But Salomon Smith Barney Inc. cable analyst Niraj Gupta said that Liberty's 2003 guidance for the Starz unit was impressive, even with the $80 million reduction.

In a research report, Gupta wrote that despite the impact of the contractual dispute with Comcast, Starz's flat revenue and cash-flow guidance implies 8 percent revenue growth and 24 percent cash flow growth on a comparable basis.

Although Gupta lowered his year-end 2003 revenue estimates for Starz from $974 million to $958 million, he increased his cash-flow estimate from $336 million to $360 million.

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