Liberty Media's Investment Portfolio Is Worth a Lot More

Liberty Media  (NASDAQ: LMCA  )  is a great media holding company and its investments have increasingly become more valuable. The diversified company, controlled by John Malone, owns wide-ranging holdings in media, entertainment, and communications. The company trades at a discount to its intrinsic value and the value of its holdings is rising. As the gap between share price and net asset value shrinks, Liberty Media will become a lot more valuable. 

Sirius will grow subscribers
Liberty Media's publicly traded subsidiary, Sirius XM  (NASDAQ: SIRI  )  redeemed the first tranche of its $500 million share repurchase from Liberty for $160 million in the last quarter at a price of $3.66 per share. However, the companies decided to put the brakes on redeeming the remaining two tranches, which include another 93 million shares, until Sirius's special committee comes to a decision regarding Liberty's proposed all-stock acquisition offer for the remaining 48% of Sirius XM which Liberty doesn't currently own.

There's a decent probability that the committee will ask for a higher purchase price from the current exchange ratio which amounts to $3.68 per share. A stock transaction might be beneficial for Sirius shareholders because it will be tax-free, and also because Liberty's stock trades at a discount to its net asset value of close to $160 a share. 

Sirius expects to add 1.25 million subscribers in 2014 and it also expects to generate revenues of close to $100 million from the acquisition of the telematics services unit of Agero in 2014. Since a substantial portion of Liberty Media's stock price is tied to the market value of Sirius XM, the future of Liberty Media is heavily dependent upon the performance of the satellite radio giant.

Live Nation is improving rapidly
Liberty Media's 26% stake in Live Nation  (NYSE: LYV  ) , the largest live-entertainment company in the world, has been a very valuable investment as the stock price of Live Nation is near recent highs. Live Nation saw its 2013 revenue increase 11% to $6.5 billion as concert attendance jumped 19% in the last quarter.

In 2013, Live Nation promoted almost 23,000 events which brought together 60 million music fans. As 70% of Live Nation's total revenue comes from concerts, growth in events would help the company grow its revenues and earnings. Live Nation's business has turned a corner, as its 2013 operating income showed significant improvement over the previous two years.

Live Nation has had a negative bottom line for the last three years, but the company has seen stellar revenue growth and grown its customer lists substantially in the last year. Live Nation's improving fundamentals will flow through the company's bottom line and drive additional upside to its stock price.

Charter will go after other assets
Charter Communications  (NASDAQ: CHTR  )  had 5.9 million residential and commercial subscribers at the end of 2013. Currently 62% of Charter's customers have subscriptions for bundled services. The cable provider saw its Internet user count rise to 4.4 million residential subscribers while it has 4.2 million video subscribers and 2.3 million residential telephone subscribers. In addition, Charter also serves 567,000 commercial primary service units, or PSUs, which are mostly small and medium-sized businesses. For 2013, 84% of Charter's revenue came from residential customers and its recent revenue growth has been coming mostly from triple-play households.

Liberty Media holds a 26% stake in Charter, the fourth-largest cable operator in the U.S.  Now Charter will likely go after Time Warner Cable subscribers after its bid for Time Warner Cable was bested by Comcast. Charter is trying to accelerate its revenue growth, as many cable providers are facing declines in video subscribers. If Charter can acquire certain customer segments from Time Warner Cable at a reasonable price, this would be value-enhancing for Charter and subsequently for Liberty Media.

Going forward
Even if the deal with Sirius XM doesn't go through, Liberty Media will continue to be the controlling shareholder of Sirius. The holding company will continue to reap substantial benefits from Sirius, as a majority of its net asset value is tied to the stock price of Sirius.

If Sirius's special committee approves the deal, Liberty Media can leverage the balance sheet of the combined entity and use the deal-making prowess of John Malone to generate a lot of value for long-term shareholders. Share buybacks have always been a focus of Liberty's management team and Liberty Media still has $327 million in share buyback authorization available. Liberty trades at a discount to its net asset value and the value of its asset portfolio is rising as well. As a result, long-term investors in Liberty Media will do very well by betting on the company's fortunes.

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  • Report this Comment On March 12, 2014, at 7:08 PM, kemo62 wrote:

    Mr Faruk, you said: There's a decent probability that the committee will ask for a higher purchase price from the current exchange ratio which amounts to $3.68 per share. A stock transaction might be beneficial for Sirius shareholders because it will be tax-free, and also because Liberty's stock trades at a discount to its net asset value of close to $160 a share.

    Sir you are not up to speed on the stock deal. SIRI shares will not be exchanged for liberty stock!

    Siri will be exchanged for a new class "c" stock with no voting rights .Siri holders will get one share of the new class c stock for every 13 shares of seri. The new class c stock will be valued at aprox 48.00 to$ 50.00.Sir stock was at 3.68 when the offer was made and now about $3.40. The market speaks and siri holders are voting with their feet. If Liberty did not move to acquire, Siri would revisit and surpass its $4.18 highs.IN the movie "the God father Don Coreleon said to his son Michael, "Be a lawyer because one lawyer with a briefcase can steal more than 100 men with guns".jUST MY OPINION, LOOK AT SIRI PRICE TODAY,A LOT OF MY siri MONEY HAS GONE AWAY 'PERHAPS NEVER TO RETURN!!

  • Report this Comment On March 12, 2014, at 8:53 PM, ishfaque wrote:

    @kemo62: Well the Class C stock will be based upon Liberty's media performance only without voting rights. Currently Liberty has majority voting over Sirius, and John Malone has 47% voting rights of Liberty Media. So it makes little difference to minority shareholders irrespective. And as for the price of the deal you are correct, but you should remember that more than two-thirds of Liberty Media's stock is based on the stock price of Sirius. So if Sirius's stock price falls, Liberty falls. But Liberty will likely pay a slightly higher price for Sirius from the prior offer.

    But if you hold the stock of Liberty Class C, you will be getting a stock that trades at a modest discount to NAV, and over time that discrepancy should close because the company will be wholly-owning Sirius at that time. Hope this helps. ---Ishfaque

  • Report this Comment On March 13, 2014, at 11:24 AM, kemo62 wrote:

    MR FARUK, YOU SAY

    ,But if you hold the stock of Liberty Class C, you will be getting a stock that trades at a modest discount to NAV, and over time that discrepancy should close because the company will be wholly-owning Sirius at that time. Hope this helps. ---Ishfaque

    OK sir ,I believe that is true . I also think that because class C shares will be created just for the exchange, the C shares NAV will be ONLY the value of the SIRI shares exchanged .If the C shares start trading at a discount- post exchange, the ex SIRI holders lose.

    More important to me is -exchanging 13 for one is the equivalent of a 13 to 1 reverse split. I don't like reverse splits for any reason as the smaller number of shares held takes away my leverage in the price motion .I would rather own 100,000 shares of SIRI than 11,500 shares of the new class C. With 100,000 shares a penny move in the PPS is $1000. Adding the no voting rights condition is adding insult to injury. One can never underestimate the value of the right to vote in any matter -public or private .I'm not here to debate you on the facts sir ,this is just my feeling(belief) why the deal not good for SIRI holders other than Jon Malone. Its no secret that he wants SIRI for its cash flow borrowing capacity and perhaps the NOL's.Those things impacting the new Siri balance sheet will have a negative effect on the class C . This is going to turn into a very long term investment before any reasonable ROI happens . I,m hoping the special committee will decide against but think the committee is not impartial and it will approve.

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