Liberty Media: A Strong Buy Before the Split

Liberty Media shares will see strong upside after they split into three in July and the company's assets are packaged into a separate company called Liberty Broadband.

Jun 6, 2014 at 4:00PM

Media holding company Liberty Media (NASDAQ:LMCA) has extremely valuable assets in its portfolio of holdings. The company trades at a steep discount to its underlying net asset value. The company's management is splitting the stock into three through a special dividend. Incremental clarity about some of the company's privately held assets will lead to heightened transparency, and lead to higher valuation for the company's stock price.

Break-up will enhance transparency|
Liberty Media will be spinning off a portion of its business next month by handing out a special dividend of two non-voting Class C shares for each Class A share of Liberty Media. Liberty owns a large variety of media, entertainment, and broadcasting assets. After the instigation of the stock split, the company will package its ownership stake in Charter Communications (NASDAQ:CHTR), its small equity interest in Time Warner Cable, and its TruePosition subsidiary into one company called Liberty Broadband and spin-off those assets as a separate public company. 

Existing shareholders of Liberty Media will receive one share of Liberty Broadband for every four shares of Liberty Media. In addition, shareholders will receive subscription rights to acquire one share of Liberty Broadband for every five shares of Liberty Broadband held at a 20% discount to the 20 trading-day-volume-weighted average trading price of Liberty Broadband. This series of complex transactions by Liberty's management will lead to higher price multiples in the public markets for both pieces of the company. 

Liberty Media trades at a sizable discount of more than 15% to its net asset value, and these actions will improve transparency regarding the company's various assets. For example, its baseball company has an estimated value of more than $730 million but the current trading price of Liberty Media indicates that investors have attached a very small value to that asset. So asset separation will lead to value creation for shareholders. 

Deal-making and share repurchases
Liberty Media has fantastic deal-making capacity thanks to financially savvy media and cable investors in its leadership who include John Malone and Greg Maffei. As a result of its shrewd deal-making capacities the company has majority control over satellite radio giant Sirius XM (NASDAQ:SIRI). Liberty owns more than 53% of Sirius XM and that ownership percentage is almost certain to go up over time. 

Sirius XM trades at a market cap of roughly $20 billion. It will repurchase shares worth $1.7 billion by using more debt in its capital structure and this will ramp up its ownership stake in Liberty Media. John Malone has been a proponent of share repurchases ever since his days at TCI, and that strategy is being utilized at Sirius XM and Liberty Media. 

Liberty Media still has $327 million left in its own share repurchase program, and buying back stock when it is trading at a notable discount to NAV will boost the future value per share. If that wasn't enough, Liberty Media also ramped up its stake in Charter Communications.

Liberty bought another $125 million worth of Charter stock and now owns 26.4% of the cable company. Charter has struck deals with Comcast and Time Warner Cable, which will become the second-biggest cable operator in the country with the Comcast subscribers gained after the Comcast-Time Warner Cable deal goes through. And as a result, Charter's earnings and cash flow should see robust improvements in the future as it will be a much bigger company because of its deal with Comcast, and Liberty Media stands to benefit. 

Going forward
Liberty Media's investors have a lot to be optimistic about: the company's new structure will reduce its discount to NAV and the two separate companies should benefit from strong market positions. The Liberty Media entity will benefit from leveraged share repurchases at Sirius XM, and Liberty Broadband investors will benefit from discounted subscription rights as well as a stronger Charter. Investors would be remiss not to consider picking up some shares before the spinoff this summer. As always Foolish investors should do their own research before making any investment decisions. 

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers