Stock Architecture to Lock Control

"Bob and I had known Heritage chairman Jim Hoak for years, so we flew out to Des Moines, Iowa, to check his temperature. Bob and I had doubled up in a single room at the local Holiday Inn, and the night before we met Jim, we made a beeline for the hotel bar after dinner, still chewing over the issues of control. “What if we did this with two classes of stock?” I asked Bob. “TCI can split its stock, then issue a class B share for every share that exists.” Bob looked at me, his empty face begging for an explanation for this unprecedented maneuver."

"The idea for two classes of stock was a seminal solution for TCI and one of my prouder moments. Magness was able to double his 20 percent voting control of TCI at the time to around 40 percent, Hatch got out of TCI. And TCI ended up with a profitable stake in Heritage—all tax-free because the deals were stock swaps."

"We could not simply spin Liberty off into its own company—it did not meet the spin-off rules at the time, which required majority ownership of the entity for five years. So with the help of a smart accounting advisor, we came up with the idea of a “simultaneous incorporation,” in which a newly spun-out entity is legally incorporated at the time it receives the assets and stock of a qualifying business from the parent—and is tax-free under IRS rules. Liberty Media would hold the stakes in programming networks, including 50 percent of American Movie Classics, 16 percent of the Family Channel, and 30 percent of QVC, and interests in fourteen regional sports networks, as well as fourteen cable systems. TCI shareholders would get the “right” to buy one Liberty share for every two hundred shares of TCI they owned. And each right allowed an investor the option to swap in sixteen shares of TCI stock for a single share of Liberty Media. Liberty was expected to own 10 percent of TCI’s outstanding shares on a fully diluted basis."

"Magness looked up at an old ranch dog, a lethargic mixed beagle named Tiger, sleeping by the fire. “About the only one we can trust in the whole world is Tiger…,” Magness said. I laughed. Then… lightning struck. TCI, too, had a sleeping asset that could save the day. By happenstance, we had an unrestricted subsidiary that was not on the balance sheet of TCI, a small cable system down in Brazoria, Texas, that for some reason was not covered by the bank agreements. If we could leverage the balance sheet of that company to purchase stock, we could buy the shares back at a bargain and redeem them into the treasury. And that is exactly what we did, buying back almost 20 percent of the company at a big discount, redeeming shares, and shrinking the equity through an entity called Tiger Inc., which included the stock held by Gulf+Western and Kaufman & Broad. The move allowed us to keep more than 40 percent of TCI shares in friendly hands. We later moved the Tiger shares over to Jerry O’Brien, publisher of *The Salt Lake Tribune,* an early TCI investor and Magness friend."