WANT THIS STOCK? IT'S UP 91,000% John Malone's acquisition strategy has worked wonders for cable TV giant TCI. But with cable system prices heading out of sight, what can he do next?
By Christopher Knowlton REPORTER ASSOCIATE Gabrielle Solomon

(FORTUNE Magazine) – ON MOST WEEKDAYS, John Charles Custer Malone, the salt-and-pepper-haired CEO of Tele-Communications Inc., drives home from his Denver office to have lunch with his wife and walk his dogs. At 48, a father of two, he prefers a simple evening at home to a night on the town and spends weekends gardening or sailing. Says he: ''I'm basically an introvert. I'm quiet. I want a quiet existence.''

But don't let Malone's mild manner and humble homebody ways fool you. Many consider this man the most able and powerful executive in television. In the last ten years he has built TCI from a sickly $92-million-a-year operator of cable TV systems into the brawny industry leader, with projected 1989 revenues of $3.3 billion, enough to move it into the company of media giants like Walt Disney and CBS.

This growth has put a cattle prod to the stock. A recent study by Paul Kagan Associates surveyed nearly 4,000 stocks that appear in Standard & Poor's Stock Guide, comparing their lows of the last two decades with their closing prices on April 28 of this year. TCOMA (as TCI is known on the ticker), trading over the counter, had the third-best performance (after Circuit City Stores, an electronics retailer, and LIN Broadcasting, a cellular phone company and takeover target). The stock showed an increase of 55,000% since its low in late 1974, but that figure understates its performance. The Kagan study omits the value of stock in two companies spun off to shareholders. Factor these in, and the value of a share actually increased more than 91,000%, from a low of $1 to $913, a 58% compound annual rate of return. Even some TCI secretaries are worth a million dollars, compliments of the stock in the company's retirement plan. TCI's tale offers lessons for managers of all stripes. The company has ; prevailed with long-term focus, effective decentralization, lean management, and an elbow-flying aggressiveness that has earned it a posse of enemies. As the fight between Paramount and Time Inc. (parent of FORTUNE's publisher) makes plain, cable systems, which throw off cash, have become among the most valuable media assets. Operating out of a black-glass office building in a Denver industrial park, TCI has the potential to become the richest media company in the U.S. MOST WITNESSES give Malone the principal credit, although he is not the company's founder nor by any means the sole contributor to its success. What's more, he can no longer operate the way he used to. With few affordable cable systems left on the market, Malone has begun to change TCI's strategy, focusing on getting more from the systems the company owns rather than on acquiring new ones. His biggest decision will be where to spend TCI's widening cascade of cash. TCI is the largest client of ESPN, HBO, and other suppliers of cable TV programs because the company or its partly owned subsidiaries serve 24% of America's subscribers. This gives Malone considerable influence in determining the variety and quantity of programming services that flow through his wire. Few new cable networks get launched without Malone's okay, and all programmers face fierce negotiations over rates. TCI has bargained for itself some of the lowest programming costs in the industry. Says Malone, bluntly: ''We refuse to get raped by the programmers.'' Malone could pass for a Marine Corps sergeant. He has a sturdy build and a broad, rugged face with wide-set eyes and a strong jaw. In conversation he is subdued and self-contained but for occasional flashes of contentiousness. Because of his tough talk, his strong-arm tactics with programmers and municipalities, and his undeniable power, he is sometimes called the godfather of the cable industry. It is an industry imbued with sweet economics. In addition to generous operating margins and lavish cash flow, this noncyclical business yields predictable income year after year, similar to that of public utilities. Entrepreneurial from the outset, TCI has run its business as though it were privately owned, minimizing what it must pay in taxes and ignoring what it reports as earnings. The company has concentrated on building shareholder value by leveraging the business to the hilt with debt in order to buy new cable systems. These systems' cash flow has enabled TCI to cover its interest payments easily and go buy more. All this force-feeding has created a giant cash cow. By the end of this year TCI will be generating operating cash flow -- that's profit before depreciation, interest, and taxes -- at an annual rate of about $1.3 billion, more than any other communications company and more than the three major TV networks combined. Last year TCI paid over $700 million in interest on its debt, and most of what was left over went to capital expenditures and acquisitions. In 16 years as CEO, Malone has done 482 deals -- an average of one every two weeks -- and four have been for over $1 billion. In all, TCI has 6.5 million subscribers in its consolidated operations and five million more indirectly through the handful of companies in which it has less than 50% equity stakes. A map of TCI's more than 1,000 local cable systems would show a speckling across the U.S., with dense concentrations in the Rocky Mountain region, the Northwest, Texas, the Southeast, the San Francisco Bay Area, and Chicago. Lump together all its affiliates and TCI becomes nearly three times as large as its nearest competitor, American Television & Communications, owned by Time Inc. ALMOST ALL operating control in TCI, as well as marketing and accounting, gets delegated down to six separately incorporated regional divisions, which oversee thinly staffed state offices. A three-man executive committee -- Malone, TCI chairman and founder Bob Magness, and an outside director, Salt Lake Tribune publisher Paul J. O'Brien -- makes all policy decisions and can act speedily on deals without convening or even, in many cases, consulting the board of directors. Despite its pizazz at dealmaking, few consider TCI a model corporate citizen. In fact, some call the company a bully. TCI has often taken a hard line in its franchise renewal negotiations. In one notable instance in Vail, Colorado, in 1973, TCI cut off all programs to its customers over a weekend and instead ran the home phone numbers of the mayor and city manager. In 1985 the company lost a lawsuit brought by another cable operator that claimed it engaged in ''monopolization and conspiracy to unreasonably restrain trade.'' The case centered on TCI's attempt to renew an expiring franchise license in Jefferson City, Missouri, the state's capital, in 1981. According to testimony, a TCI ''troubleshooter'' in the franchise renewal department threatened a consultant hired by the city to evaluate bids, saying, ''We know where you live, where your office is, and who you owe money to. We are having your house watched, and we are going to use this information to destroy you. You made a big mistake messing with TCI. We are the largest cable company around. We are going to see that you are ruined professionally.'' Other tough-guy tactics followed. TCI withheld about $60,000 in past-due franchise fees and threatened to terminate all cable service until the franchise was renewed -- coercion the judge in his written opinion described as ''nothing short of commercial blackmail.'' A jury awarded the plaintiff $10.8 million in actual damages and $25 million in punitive damages. The judgment was affirmed on appeal, and the U.S. Supreme Court declined to hear the case. To this day TCI denies any wrongdoing. It blames the incident entirely on its employee, who no longer works for the company. Says G. Stephen Long, a Denver lawyer who opposed TCI in Jefferson City: ''They basically think they can do anything they want. I think their view of political bodies is that they are a bunch of buffoons. So they run over them.''

UNHAPPY with the bully label, which he considers unfair, Malone is trying to make over TCI's image. These days he talks more to the press and has assumed a conciliatory stance with programmers and municipalities. He worked hard to help shape the Cable Communications Policy Act of 1984, which allowed cable operators to set their own rates. Now, in light of recent congressional threats to reregulate, he wants to avoid trouble. Malone shares voting control with Bob Magness, TCI's 65-year-old Oklahoma- born founder. (Together they own 65% of the Class B stock, which has ten times the voting power of the more widely traded Class A shares.) Magness's folksy philosophy shaped the company from its start in 1956. Two of the chief precepts: We'd rather pay interest than taxes, and Keep it simple. Both have the status of commandments. His stake in TCI is worth more than $560 million. Malone's is worth about $66 million. Each has stock options worth another $20 million.

Magness and Malone make an odd couple. Malone grew up in affluent suburban Connecticut, the son of a General Electric vice president. A magna cum laude graduate of Yale who once worked for McKinsey & Co. management consultants and Bell Labs, he has two master's degrees and a Ph.D. in operations research (a mix of math and engineering) from Johns Hopkins. Magness, whose family was in the cattle business, graduated from Southwestern State College in Oklahoma. But both are salty tongued and unpretentious, both dedicated family men who shun the limelight. Says Magness: ''We talk very freely and quickly. We seldom disagree, and when we do, we never get upset about it.'' With fewer cable systems available at bargain prices, Malone wants to improve what he has. TCI offers monthly charges among the lowest in the industry, but its reputation for customer service is not terrific. Malone is trying to fix that. The company is also spending more on marketing existing systems. As a result, 360,000 new subscribers sent in their checks in the first five months of this year, and these new subscribers cost $670 each to enlist, vs. the $2,500 it would cost to acquire them by buying new systems. Morgan Stanley analyst John Tinker estimates that increasing subscriber levels by a percentage point adds $400 million to TCI's value. WALL STREET wonders what Malone will do next with TCI's artesian well of cash. It is an enviable problem. Although circumspect about his plans, Malone virtually rules out any dramatic diversification into other heavy cash- generating industries such as cellular telephones. Rumors in Hollywood say he might want to acquire a studio. In May he announced plans to buy the outstanding stock of a large TCI subsidiary in a move many say presages a series of deals to buy in or sell off TCI's affiliated cable subsidiaries. If the stock continues to trade at a significant discount to what many analysts consider its breakup value, as it does today, he could repurchase shares or perhaps take the company private. Malone will vacation this summer at his 200-acre farm in Boothbay Harbor, Maine. He will sail his 59-foot Hinckley, work in his apple orchards, and plot TCI's next moves. That's a heavy job for a vacation, because those moves will have to answer a question Wall Street keeps asking: As his record becomes more remarkable, how can this introspective asset builder keep TCI growing at a gallop?

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: PROGRESS OF AN INVESTOR'S DREAM Although TCI has posted frequent losses, the stock has split 24 for 1 over the past 15 years. Here's how $1,000 invested at the year-end low in 1974 has multiplied in value.