DIRECTV Goes It Alone

There's a reason John Malone called his empire Liberty Media, which consists of three tracking stocks, Liberty Capital (Nasdaq: LCAPA  ) , Liberty Starz (Nasdaq: LSTZA  ) , and Liberty Interactive (Nasdaq: LINTA  ) . As a famed Libertarian, he doesn't like the government getting involved in anyone's business, least of all, his. That's why his deals are always so complex; he hates paying taxes. So do I. The only difference is that he can actually get away with it by creating complicated deal swaps. I can only take a few deductions here and there. Sigh.

So even though Malone knew all along that the FCC would have conditions to his swap of News Corporation (NYSE: NWS  ) shares for his stake in DIRECTV (NYSE: DTV  ) in 2008, the chickens have come home to roost, and you can bet Malone is not a poultry aficionado. The result is that Malone, in order to satisfy the government, had to resign from DIRECTV's board of directors and reduce his voting stake from 24.3% to 3%. Liberty's CEO Greg Maffei and another Liberty executive are expected to resign as well.

You, dear Fool, are probably asking the same question I am: Why? Without getting into complexities, the FCC was wringing its hands over the fact that Malone controlled too much of content distribution in Puerto Rico. Apparently, with Malone owning a huge stake in DIRECTV's Puerto Rico operations, and Liberty Global operating Cablevision Puerto Rico, the government bureaucrats felt that he controlled too much.

It's not like Malone was about to invade the island and secede from the U.S., even though he might like to. No, it's all because of ... well, I don't even know. Monopoly fears? Price control? In tiny Puerto Rico? No way. Not if you ask me. Malone and the government have been going at it for years. Much of his struggle is documented in his biography, Cable Cowboy. To me, it's just another example of a pointless government agency throwing its weight around against a longtime rival.

Too much, you say? Hey, maybe the FCC has a real concern, you say? Rusted satellite dishes, I say. DIRECTV placed its Puerto Rican ownership interests into a trust, managed by an independent trustee who would divest DIRECTV's ownership in DIRECTV Puerto Rico. Nope, not good enough, said the FCC. Hence the move by Malone.

You know what gets me about all this? We get the expected announcement that, "We believe that this is in the best interests of DirecTV and its shareholders," said Mike White, president and CEO of DirecTV.  But it isn't. The truth lies in the first part of Mr. White's quote, which is this: "While we will miss John Malone's experience, knowledge of our industry and keen business insight ..." Of course they will! How could they not? Malone invented the cable television industry. He's been in content distribution all his life! DIRECTV had stellar performance before Malone came into the picture and even in the midst of this recession, he's helped it perform incredibly.

Miss John Malone's experience? You bet we shareholders will! The entertainment landscape is constantly changing. DIRECTV has up-and-coming competition from Verizon's (NYSE: VZ  ) FiOS product and AT&T's (NYSE: ATT  ) U-verse. I want John Malone in there helping my company stay ahead of the game. And since I wouldn't rule out the possibility that Verizon might even buy DIRECTV, I'd want a consummate dealmaker (with an eye for avoiding taxes) like John Malone on the board and with a huge stake!

So what's this mean for us shareholders? The good news is that this isn't a disaster by any stretch of the imagination. New CEO Mike White and his team will do a fabulous job with an outstanding product. It has a great business model, great financials, and I still believe it is undervalued.

But as I stretch out in front of my plasma TV, watching as DIRECTV delivers me the final season of LOST in awesome HD and digital sound, I cannot help but wonder just how much more value I'd be earning if the FCC had kept its grubby little paws and its inflated ego in check. I also wonder how else the government will over-reach, and which of my investments it will threaten next.