OK, it's probably a good thing that Patrick Henry didn't use my title for his famous speech. If he had, we'd probably still be English subjects drinking tea, and Starbuck would just be the name of a character in Moby Dick.
All the same, it looks like Liberty Media (NYSE:L) is on the path to creating shareholder value. In addition to reporting pretty good fourth-quarter earnings (sales up; operating cash flow up, too), the company announced that it will be spinning out its ownership interests in Ascent Media and Discovery Communications (which includes the Discovery Channel) to shareholders in the form of a new publicly traded company called Discovery Holding Company.
Despite Liberty's owning some valuable assets, Wall Street has never been exactly comfortable with John Malone's baby, and the stock's valuation has historically suffered because of it. The stock has generally traded between $9 and $12 for some time now and hasn't seen the $20-plus level in about five years.
What's more, depending upon whom you want to believe, Liberty's shares may be undervalued by anywhere from 10% to 45%, simply because Wall Street isn't comfortable giving full valuation to all of the bits and pieces within the company.
Nevertheless, it seems as though Liberty is committed to unwinding some of its holdings in an attempt to simplify its structure and recognize some value. The company spun off its international distribution assets last year and swapped its interest in E! Entertainment, the International Channel, and some cash to Comcast (NASDAQ:CMCSA) in exchange for Liberty shares owned by Comcast.
There is also the more highly publicized issue of the company's ownership stake in News Corp. (NYSE:NWS) Liberty's 17% position in News Corp. has made Rupert Murdoch nervous enough to institute a poison-pill plan and has set some tongues to wagging about the possibility of a fight for control of News Corp.
While the reality is more likely that Malone wants News Corp. to buy out Liberty's stake, you can never say for certain what is going to happen when media titans collide. And that, frankly, is part of the ongoing problem with Liberty.
Investors shouldn't kid themselves about the safety of investing in Liberty Media just because the company owns a lot of cash-producing assets. Rich media moguls have a history of treating public companies like their own personal playthings, and shareholders could suffer if Liberty Media (and/or John Malone) gets sucked into some ill-advised glory trip or hostile takeover.
There's no doubt that Liberty Media has a lot of value hidden beneath its stock price. In addition to the cash-cow network QVC and the growing Starz!/Encore brands, Liberty owns meaningful chunks of InterActive (NASDAQ:IACI), Sprint (NYSE:FON), Time Warner (NYSE:TWX), Motorola (NYSE:MOT), and IDT (NYSE:IDT).
With luck, the company's spinoff of Discovery is just another step toward simplifying the corporate structure of Liberty Media and unlocking some of the unappreciated value within the business. Value investors should probably take a hard look at Liberty but keep a careful eye on the goings-on with News Corp. Unlocking value is great, but stirring up a hornet's nest by attempting a takeover would just further muddy some already murky waters.
Want to learn about other value possibilities? Take a free trial to Philip Durell's Inside Value newsletter.
While you're at it, bone up on these other media stocks as well:
- CME Is Living in Primetime
- Univision's Got the Eyeballs
- Knight-Ridder's San Francisco Treat
- XM's Signals Getting Stronger
- Fox Throws, and Takes, a Block
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.
