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Value and Liberty: A "Complex Stew"
04/08/2016 7:00 am EST
John Malone is an investment genius with a problem. Largely thanks to his doctorate in operations research, he’s able to structure deals that are so complex that even industry insiders have trouble understanding, notes Benjamin Shepherd in Personal Finance.
Liberty Media (LMCA) is a complex media stew, consisting of assets from satellite radio to the Atlanta Braves.
A typical Malone transaction can involve special share classes, tax losses, and assets spread across a number of entities. And it’s that complexity that is a problem for Malone and his investors.
The numbers prove Liberty is undervalued. Revenue grew from about $2 billion in 2012 to an estimated $4.8 billion last year. Over the past five years, EBITDA grew at a compounded annual rate of 59%.
But the shares trade at a lower price-to-earnings ratio than many of Liberty’s competitors — again, with complexity the prime suspect.
But when he fixes that problem in the first half of this year, the value of Liberty Media will be unlocked and investors should be well rewarded.
Last November, Liberty Media announced that it would create three tracking stocks: Liberty Braves Group, Liberty Media Group and Liberty Sirius Group.
The Braves Group will track the financial performance of the Atlanta Braves, their new stadium, and associated mixed-used development.
My initial opinion is that the Braves Group will likely have more novelty value than anything.
The Liberty Media Group and the Sirius Group should create some real gains, though. Although Sirius trades as a standalone company, Liberty Media owns more than 60% of it. Right now, Liberty’s stake in Sirius trades at a discount to Sirius itself.
For each current share of Liberty, investors will receive one share of Liberty Sirius, a tenth of a share of Liberty Braves and a quarter of a share of Liberty Media.
Only full shares of the new stocks will be issued, so investors due any fractional shares will be paid in cash.
Until prices are set for the new shares, it’s tough to gauge whether investors will come out ahead on the new scheme from the get-go. That said, I suspect we’ll see a lot of value unlocked.
By Benjamin Shepherd in Personal Finance
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