John Malone is gaining steam in Japan.
Liberty Media International
, of which the cable mogul is chairman and CEO, said Tuesday it had reached a deal with Sumitomo Corp. to pool their interests in Japan's largest operator of cable TV systems.
The transaction will enable LMI to launch an initial public offering of the cable operator, Jupiter Telecommunications, and to control most of JCom's affairs. The deal also paves the way for LMI to consolidate JCom's results in its own profit-and-loss statements.
One analyst sees the deal as an opportunity for LMI to both increase its value in investors' eyes and to develop "acquisition currency" for use in Japan -- publicly traded stock that can be used as merger money to fuel consolidation.
That would enable LMI, via JCom, to continue what Malone did when he was head of the cable operator Tele-Communications Inc. in the U.S. -- build a cable operator by acquisition. JCom provides video service to 1.6 million homes in a country that, according to the Foreign Press Center/Japan, has at least 38 million TV households and 15 million cable TV subscribers.
"This new structure ... should be viewed as another potential value-unlocking event as the financial results of JCOM will be more directly visible as part of the LBTYA story, as revenue and OIBDA
operating income before depreciation and amortization of the entire country will be significantly greater yet the EPS will remain unchanged," wrote JBHanauer analyst David Joyce in a note Tuesday.
"This move may allow an IPO of a Japan-only trading vehicle that can be used as acquisition currency for the looming wave of potential consolidation that investors in LBTYA have already widely been expecting as part of the LBTYA growth story in Japan," wrote Joyce.
Joyce, who has an outperform rating on LMI, raised his price target on the company's A shares from $47 to $51.
LBTYA shares rose 75 cents to $42.60 Tuesday. The stock, which was spun off from Malone-controlled
in June, has climbed steadily from an August low of $28.60.
Under the agreement announced Tuesday, LMI will contribute its 45% stake in JCom to a new entity called LMI/Sumisho Super Media. Sumitomo will contribute a 20% stake in JCom, and another 12% stake in JCom within a year of the deal's closing, subject to certain conditions.
Super Media, says LMI, will be run by a management committee comprising two members, with LMI and Sumitomo each appointing one of the members. If JCom goes public in Japan, LMI's representative will have the deciding vote on most management committee decisions, says LMI.
Super Media is expected to be dissolved in five years, unless the two partners decide to extend its life. LMI and Super Media expect the deal to create the holding company will close at year's end, and they will terminate the agreement if closing doesn't occur by March 31.