TCI was born in western Texas in 1952 when Bob Magness, a part-time rancher with a weakness for whisky and gambling, gleaned from a couple of hitchhikers a nifty investment idea that almost bankrupted him.
He sought help from John Malone, and by 1990, Malone had expanded TCI’s reach and assets more than 10-fold, making nearly 500 acquisitions in that time, an average of one deal every two weeks. The structures of his deals were exotic, and his financial alchemy often befuddled Wall Street and investors.
The flurry of complex mergers, acquisitions, stock dividends, and spin-offs clouded the picture of the company’s true performance, which was phenomenal by the one measure that counts in almost all business: shareholder value.
Despite its reputation as a risky play, through 1997, TCI outperformed every other stock in the market. A single share of TCI, purchased at the 1974 low of 75 cents, was worth $4,184 by the end of 1997-a 5,578-fold increase.
The Cable Cowboy, quoted above, was initially published in 2005. Malone has not lost a step in the ten years since. In fact, his methods of capital allocation, including the use of joint ventures, have perhaps accelerated. He realized early on that by leveraging the company’s scale into equity interests, that these interests could add significant value for shareholders, with little incremental investment.
The chart below illustrates the current “Malone Complex” – it may take a minute or two to digest. For an overview of the current media value chain, and our preferred piece of the complex, we suggest Discovery Communications & the Uncertain Future of Pay-TV.