Denver -- In a complex series of agreements,
Tele-Communications Inc. last week settled its dispute with the heirs to TCI founder Bob
Magness' $1 billion estate.
The settlement resolved a legal brawl that could have
allowed more than 32 million shares of TCI Class B supervoting stock to fall into
Instead, it guarantees that the stock will ultimately make
its way back to TCI, while strengthening chairman and CEO John Malone's control over
the company in the interim.
Under the terms of the out-of-court settlement, TCI agreed
to return 16 million Class B shares to Magness' sons, Kim and Gary, by rescinding
part of a $529 million stock deal that it entered into last year with executors for the
Malone and the family have agreed to confer on how the
Class B shares are voted. If the two sides can't agree, Malone has an
'irrevocable proxy' to vote the shares owned by the Magness family.
Under its original deal, TCI acquired the 32 million Class
B shares from the estate for $529 million, or just over $16 per share. It converted the
shares to Class A stock, then parked the block with Merrill Lynch & Co. and Lehman
Bros., keeping it off the open market and maintaining Malone's control.
That transaction triggered a lawsuit by the heirs against
Malone and the estate's executors, TCI board member Donne Fisher and University of
Colorado president Daniel Ritchie. The lawsuit alleged that the executors cut a sweetheart
deal that favored Malone and TCI, while costing the estate millions.
Moreover, the Magness suit alleged that Fisher and Ritchie
ignored a higher, last-minute bid by another buyer -- which, industry sources have told Multichannel
News, was Comcast Corp.
In announcing the settlement, TCI president and chief
operating officer Leo J. Hindery Jr. conceded that in acquiring the Magness stock, the
company had not considered the 'fiduciary duty' of the estate's executors
to obtain the best price for the shares.
Hindery conceded that 'there was a lot of
interest' in the Magness stock, and that the company was trying to stay out of a
bidding war that it could not afford to lose.
'It [the stock] could have gone to somebody we liked,
or it could have gone to somebody we didn't like,' he said.
TCI also agreed to pay $124 million for a 'call'
option that allows the MSO to acquire an aggregate of 34 million Class B shares held by
the estate in the event of Malone's death.
Malone, meanwhile, agreed to sell TCI an option on his
roughly 42 million Class B shares for $150 million. Under that agreement, should Malone
die or contemplate selling the stock, TCI has the right to acquire the shares for the
existing price of its Class A stock, plus a 10 percent premium.
Hindery said the call agreements ensure that control of TCI
will remain with the MSO's board of directors.