Liberty's Malone not likely to alter plans of media giants. (Media & Technology).

The beleaguered AOL Time Warner Inc. and Vivendi Universal SA have these things in common: media assets, battered stock prices, cranky investors--and the opportunistic Liberty Media Corp. Chairman John Malone as a big shareholder.

Investors in all three companies are trying to guess how Malone might capitalize on such distress. Liberty Media gained its 3 percent stake in Vivendi only the other week, with the completion of Vivendi's acquisition of the entertainment assets of USA Networks Inc., of which Liberty was a founding shareholder.

Liberty's 4 percent stake in AOL Time Warner stems from the 1996 sale to Time Warner Inc. of Turner Broadcasting System Inc., in which Liberty held shares. Now Liberty has petitioned the Federal Trade Commission to set aside an order that capped its stake and restricted Liberty to non-voting shares, giving rise to speculation that Malone wants a larger role at AOL.

As for Vivendi, parent of Universal Studios, the Wall Street Journal Europe has cited Malone as a possible "orchestrator" of a bid for all or part of the French company.

Not so fast

My savviest sources doubt that the 61-year-old Liberty Media chairman will sway the course of AOL Time Warner or Vivendi. Why? Malone lost his power as the nation's biggest "gate-keeper" to U.S. cable subscribers when he sold Tele-Communications Inc. to AT&T Corp. in 1999, even though he has enviable stakes in programming companies.

Liberty's holdings include 50 percent of Discovery Communications Inc., 42 percent of home-shopping giant QVC, 20 percent of USA Interactive and 18 percent of News Corp., to name a few.

But Malone's portfolio didn't matter to NTL Inc., the U.K.'s largest cable company, which rebuffed Liberty Media last month when it sought a role in restructuring that heavily indebted company. At a presentation to investors last week, Liberty Chief Executive Robert Bennett did confirm that talks are underway to purchase NTL's Swiss unit--as well as other European cable companies.

Malone has made some masterful moves on the media game board in the past two years, when he traded stakes in smaller companies for stock in media giants.

In September 2000, when shares of Pasadena-based Gemstar-TV Guide International Inc. were trading seven times higher than current prices, Malone struck a deal to swap his Gemstar stake for shares of News Corp., raising his stake in the larger company to 18 percent.

In the same vein, Malone sold his 35 percent stake in BET Holdings II Inc. last year to Viacom Inc., receiving 15.2 million shares of Viacom's Class B common stock. Indeed, Liberty has the right to "put" its 42 percent stake of QVC, a non-public company, to majority shareholder Comcast Corp., although Malone has skipped his annual opportunity to do o for three years.

Malone told the Wall Street Journal less than two months ago that he eventually expects to convert his QVC stake into shares of Comcast. But Business Week has speculated on a three-way play that would allow Malone to exchange his QVC stake for a larger share of AOL. Arguably, Malone could swap his QVC stake--and some cash--for a 25 percent stake in Time Warner Entertainment Co. that Comcast will acquire along with AT&T's cable business if its pending merger is completed.

Sweeten the pot

Business Week didn't explain what might induce AOL Time Warner to issue shares to Malone, instead of letting him twist in the wind as a minority partner in Time Warner Entertainment.

A limited partnership formed in 1992, TWE owns Burbank-based Warner Bros. Studio, Home Box Office, a majority of the WB Network and most of AOL Time Warner's cable TV business.

Some analysts have speculated privately that Malone might use another investment, such as Discovery Communications, to sweeten the pot for AOL. But other analysts note that Malone may be loath to reduce his Discovery stake, because such action might jeopardize Liberty Media's status as a holding company. If Liberty Media's assets are too heavily weighted with investments in publicly traded companies, it will fall subject to the Investment Company Act of 1940.

Any play for Vivendi Universal would require even greater acrobats, but the Wall Street Journal Europe reported that in the

Paris rumor mill, "The possible orchestrators of a bid include the Bronfman family, which owns 6 percent of Vivendi; cable mogul John Malone, with 3.4 percent, and Barry Diller ... now a Vivendi employee."

No doubt the Bronfman clan is unhappy about Vivendi's performance since the family-controlled businesses were sold to create Vivendi Universal. But the Bronfman family is barred from participating in a hostile action, under the terms of the merger agreement.

There goes the cabal.

Still, no one wants to underestimate Malone as a lone agitator. With less than one percent of AT&T's shares, he needled that company until it agreed last year to sell the cable TV business it had purchased from Malone.

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Liberty Media

Stock prices

May 23, 2001  $17.60
May 23, 2002  $11.92

Note: Table made from line graph