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If John Malone gets hit by the proverbial bus


Guest JoelS
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Similar to the Buffett gets hit by the bus qs, what would happen to the intrinsic value over time of Malone's various entities, if Malone were to pass away?

 

I suspect many board members have exposure to one or more of Malone's companies, as I do, so I believe the question is worth asking. Here are some of my guesses:

 

1. Initially the Liberty companies fall in price. Longer term, the assets may appreciate at a slower pace because they will no longer benefit from Malone's "financial engineering". The market may also assign a discount to the holding company structures. On the other hand, whoever is in charge may attempt to simplify the assets, sell off businesses, and over the long term, equity holders still do well. Also, assets tightly controlled by Malone may suddenly be "in play" e.g. discovery communications. 

2. Maffei goes elsewhere. He seems like an energetic type, incredibly smart but not tied to any of these companies outside of a pay package. He might sell his liberty related holdings.

 

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You scared me with that title (from the form hub page all that was visible was " Re: John Malone gets hit...")  :-\

 

I suggest you start it with "What if...".

 

Sorry - that was dumb. Changed now to .. "If.. "

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By the way, I don’t follow much his other companies, but as far as Liberty Media is concerned, it is selling around NAV… Therefore, it doesn’t really seem to be much “Malone premium” in the share price today.

Probably, it is because people think they are late to the Malone party by now… My hope is they are wrong: are 15 years too many? Perhaps… But also 10 years in his company might do great things for your financial well being, and 10 years from now he will be Buffett’s age. Buffett is still pretty at the top of his game, isn’t he? ;)

 

Gio

 

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I'm not terribly worried. Malone's playbook isn't that hard to execute for the next decade or so. What you really need him for, and what he seems to do better than others, is to understand and take advantage of inflection points.

 

My guess is his lieutenants have already received the marching orders on what to do to take advantage of the turmoil that lies ahead.

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Malone is 10 years younger than Buffett. Many think Buffett can be at the helm of Berkshire for at least 5 more years… Therefore I hope to keep company with Malone for another 15 years… If Malone is gone, so I am too… No matter what happens to the stock price then.

 

Gio

Are you betting on the jockey too much, and not the company? isn't that what WEB said not to do?

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Are you betting on the jockey too much, and not the company? isn't that what WEB said not to do?

 

Buffett makes more than one kind of investment. When he invested in Capital Cities, it was definitely a bet on Murphy, and I'm not sure if he ever invested in Teledyne, but I'm pretty sure that Buffett thought the main thing that made Teledyne likely to overperform was the capital allocation skills of Singleton. Heck, a lot of his insurance stuff is likely a bet on Ajit Jain...

 

The businesses also have to be good - an the Malone businesses are - but sometimes the thing that actually seals the deal and makes you buy is the jockey.

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Are you betting on the jockey too much, and not the company? isn't that what WEB said not to do?

 

It is almost impossible to overpay the truly extraordinary CEO… but the species is rare.

--Warren E. Buffett

 

Like people on this board already know, I am not looking for a) a good business, or b) a good entrepreneur, or c) a good price… I am looking for a) and b) and c). I demand those three requisites together, otherwise I look somewhere else. In other words, I don’t like to run risks when the free cash of my firm is at stake! ;)

 

What is then the only risk I run? Well, obviously the so-called “concentration risk”. The number of companies, that at any given time satisfy both a) and b) and c), might be very small indeed. If I am wrong about any single investment of mine, some pain will surely be felt… Needless to say, I prefer to run this “concentration risk” than to accept the risks of a competitive threat, of a mediocre manager, or of holding a business at too high a price.

 

Gio

 

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Malone has done a great job in putting in place Maffei at Liberty Media and Mike Fries at Liberty Global.  When Malone passes (which hopefully won't be for a while) both companies will be in fine shape with those two guys at the helm because I believe both will stay.

 

I think Fries will have an easier time running Global than Maffei will have running Media as I view Media as more of a Malone vision.  Malone has said that Maffei was the architect for acquiring Sirius.  If he did that,, then he can do other great deals as well.

 

That being said, Malone is The Maestro (no offense, Alan Greenspan) and can't lose a guy like Malone without missing a beat or two. 

 

I would say that I believe the transition post-Malone at Liberty will be easier than post-Buffett at Berkshire.

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Are you betting on the jockey too much, and not the company? isn't that what WEB said not to do?

 

So I was re-reading Buffett's 1991 Notre Dame speech and thought this part was interesting for this discussion:

 

The Importance of Management: Cap Cities vs. CBS

I put one business in here, CBS versus Cap Cities in 1957, when my friend Tom Murphy took

over Cap Cities. They had a little bankrupt UHF station in Albany. They ran it out of a home for

retired nuns. And it was very appropriate because they had to pray every day. At that time CBS

was the largest advertising medium in the world: $385 million in revenues whereas Cap Cities

had $900,000 in revenues. Cap Cities made $37,000 a year and they paid my friend Murph

$12,000 a year. CBS made $48 million pretax. Cap Cities was selling for $5 million in the

market and priced on the come, while CBS was selling for $500 million. 

 

Now, if you look at the two companies, Cap Cities has a market value of about $7 billion and

CBS has a market value of about $2 billion. They were both in the same business, broadcasting.

Neither one had, certainly Cap Cities didn’t have, any patents. Cap Cities didn’t have anything

that CBS didn’t have. And somehow CBS took a wonderful business that was worth $500

million, and over about 30 years they managed a little increase – peanuts – while my friend

Murphy, with exactly the same business, with one little tiny UHF station in Albany, (bear in

mind that CBS had the largest stations in New York City and Chicago) and my friend Murph

just killed them. And you say “how can that happen?” And that’s what you ought to study in

business school. You ought to study Tom Murphy at Cap Cities. And you also ought to study

Bill Paley [who was the CEO] at CBS

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Are you betting on the jockey too much, and not the company? isn't that what WEB said not to do?

 

So I was re-reading Buffett's 1991 Notre Dame speech and thought this part was interesting for this discussion:

 

The Importance of Management: Cap Cities vs. CBS

I put one business in here, CBS versus Cap Cities in 1957, when my friend Tom Murphy took

over Cap Cities. They had a little bankrupt UHF station in Albany. They ran it out of a home for

retired nuns. And it was very appropriate because they had to pray every day. At that time CBS

was the largest advertising medium in the world: $385 million in revenues whereas Cap Cities

had $900,000 in revenues. Cap Cities made $37,000 a year and they paid my friend Murph

$12,000 a year. CBS made $48 million pretax. Cap Cities was selling for $5 million in the

market and priced on the come, while CBS was selling for $500 million. 

 

Now, if you look at the two companies, Cap Cities has a market value of about $7 billion and

CBS has a market value of about $2 billion. They were both in the same business, broadcasting.

Neither one had, certainly Cap Cities didn’t have, any patents. Cap Cities didn’t have anything

that CBS didn’t have. And somehow CBS took a wonderful business that was worth $500

million, and over about 30 years they managed a little increase – peanuts – while my friend

Murphy, with exactly the same business, with one little tiny UHF station in Albany, (bear in

mind that CBS had the largest stations in New York City and Chicago) and my friend Murph

just killed them. And you say “how can that happen?” And that’s what you ought to study in

business school. You ought to study Tom Murphy at Cap Cities. And you also ought to study

Bill Paley [who was the CEO] at CBS

 

Yes! Interesting indeed! :)

 

Thank you,

 

Gio

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Are you betting on the jockey too much, and not the company? isn't that what WEB said not to do?

 

So I was re-reading Buffett's 1991 Notre Dame speech and thought this part was interesting for this discussion:

 

The Importance of Management: Cap Cities vs. CBS

I put one business in here, CBS versus Cap Cities in 1957, when my friend Tom Murphy took

over Cap Cities. They had a little bankrupt UHF station in Albany. They ran it out of a home for

retired nuns. And it was very appropriate because they had to pray every day. At that time CBS

was the largest advertising medium in the world: $385 million in revenues whereas Cap Cities

had $900,000 in revenues. Cap Cities made $37,000 a year and they paid my friend Murph

$12,000 a year. CBS made $48 million pretax. Cap Cities was selling for $5 million in the

market and priced on the come, while CBS was selling for $500 million. 

 

Now, if you look at the two companies, Cap Cities has a market value of about $7 billion and

CBS has a market value of about $2 billion. They were both in the same business, broadcasting.

Neither one had, certainly Cap Cities didn’t have, any patents. Cap Cities didn’t have anything

that CBS didn’t have. And somehow CBS took a wonderful business that was worth $500

million, and over about 30 years they managed a little increase – peanuts – while my friend

Murphy, with exactly the same business, with one little tiny UHF station in Albany, (bear in

mind that CBS had the largest stations in New York City and Chicago) and my friend Murph

just killed them. And you say “how can that happen?” And that’s what you ought to study in

business school. You ought to study Tom Murphy at Cap Cities. And you also ought to study

Bill Paley [who was the CEO] at CBS

 

 

 

Buffett has also said that a good jockey will do well on a good horse, but not a broken down nag (sears holdings?)

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I am not concerned.  I think that Malone is very comfortable with the people he picked as managers (e.g Rutledge).  The concern I would think is if the discount to NAV widens (but this just makes buybacks more effective) and if there are less ideas/financial engineering going forward (but I don't think that is baked into the price of his entities anyway).

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For instance, LINTA has a rather complicated structure that impedes value realization in the short term, but also allows for buybacks and long term value creation by other means. The value is realised when the structure is simplified and the assets of the underlying LINTA distributed. When you sell your holdings before the full "cycle", you are not fully participating in the events that Malone has set in motion, regardless of whether he is around or not. This is my take anyway.

 

Well, I don’t know much about LINTA… But since I have first invested in Liberty Media, I have seen Malone taking many value enhancing initiatives, from which I have handsomely profited, and I hope I will see many more before he finally retires. For me it is that simple, and I don’t like too “esoteric” or elaborate reasonings when it comes to do business…

 

I am sure that, when Malone finally retires, I will be able to find another good business, led by a good entrepreneur, and offered to me at a good price… I will most surely sell Liberty Media and buy that other business.

 

Btw, why do I always say “good entrepreneur” instead of “good manager”? Because I know a lot of entrepreneurs and a lot of managers: looking at their different behaviors is almost like looking at the difference between lions in a zoo and lions in the wilderness. Imo when it comes to our financial success, we’d better keep company with “wild beasts”! ;)

 

The difference I see between Malone and Maffei is the difference I see between a great entrepreneur and a great manager.

 

Gio

 

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Malone is irreplaceable just as Buffett is irreplaceable. I wouldn't worry about him getting hit by a bus, though, as he'd probably spin-off himself into different body parts to avoid the collision. Or, if I'm wrong and he can be hit, then he'd probably would manage to somehow write it off that the bus would take all the damage while he himself get full compensation and ownership of the bus company.

 

 

 

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Malone is irreplaceable just as Buffett is irreplaceable. I wouldn't worry about him getting hit by a bus, though, as he'd probably spin-off himself into different body parts to avoid the collision. Or, if I'm wrong and he can be hit, then he'd probably would manage to somehow write it off that the bus would take all the damage while he himself get full compensation and ownership of the bus company.

 

Lol!! ;D ;D ;D

 

Gio

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Malone is irreplaceable just as Buffett is irreplaceable. I wouldn't worry about him getting hit by a bus, though, as he'd probably spin-off himself into different body parts to avoid the collision. Or, if I'm wrong and he can be hit, then he'd probably would manage to somehow write it off that the bus would take all the damage while he himself get full compensation and ownership of the bus company.

 

That's the funniest thing about a non-funny subject that I've read in a while  :D

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