Liberty Media's Investment Portfolio Is Worth a Lot More

Liberty Media's investment holdings have increasingly become more valuable and the company's shareholders should earn big returns.

Mar 12, 2014 at 5:01PM

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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Ishfaque Faruk owns shares of Liberty Media. and Sirius XM Radio. The Motley Fool owns shares of Liberty Media. and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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