In my opinion, there continues to be opportunities in Liberty Media (LMCA/B). It is a wonderful business with excellent managers at a fair price.
LMCA closed today at $135.25.
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john malone
Tracking John Malone (Part 4) – Live Nation (LYV)
Liberty Media continues to buy shares of LYV on the open market. I don’t see crazy undervaluation at LYV, though there are a few things about the company that stand out to me.
- The accounting is misleading. Live Nation has lots of non-cash depreciation and amortization charges that deflate earnings. Its stated depreciation is excessive. Its true earnings might be somewhere around $120-150M/year. This suggests an adjusted P/E ratio of around 16-20 (at $12.69/share).
- This company is leveraged. If you account for the debt, its valuation seems a little rich.
- Live Nation seems to be a bet on innovation increasing its earnings.
Tracking John Malone (Part 3) – Liberty Media (LMCA)
Liberty Media is John Malone’s flagship. Of all of Malone’s companies, I am interested in Media the most since:
- It is likely that Malone will continue to put his best ideas into it. This is probably the company that will grow the fastest.
- Continued share repurchases suggest that it trades at a slight discount to the value of its assets.
Liberty Media is difficult to understand. Historically, John Malone has used complexity as a weapon against institutional investors to mislead them into selling stock at too low a price. Malone’s complex Liberty companies have always tended to trade at a discount to what its assets are worth. This allows Malone to continually buy back shares at low prices (this is like free money). A secondary effect of this is that size becomes less of an anchor on future performance. Historically, you would have done the best if you had stuck to buying the most complex part of Malone’s empire that he owns the most of. He keeps the best businesses hidden in his flapship and spins off the mature businesses (e.g. Global’s cable assets), the slow-growing ones, and the not-so-great businesses (e.g. production companies/Ascent). So, I would expect that his flagship company (Liberty Media) will grow faster than the rest of his empire.
This is a great business at a good price.
Tracking John Malone (Part 2)
Where I think Malone thinks the media industry is headed
“I think it’s at a point in history when the most addictive thing in the communications world is high-speed connectivity,” he said. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”
– John Malone, CNBC interview (http://www.cnbc.com/id/100637283)
Tracking John Malone (Part 1)
I think that John Malone is one of the best CEOs and capital allocators out there. Here’s what he does and why he’s good.
Bondholder games
From reading through various financial filings, it struck me that many large corporations don’t pay a lot of attention to their bond holdings. They allow investment firms to buy dubious bonds on their behalf.
Liberty Ventures: not that interesting at $40
Now that Ventures (see old writeup) is trading, it seems that its price is fair and not particularly undervalued. (I don’t know if I made a mistake as to Venture’s cash balance and how the cash payment on the Motorola debt was handled. Ventures may have ended up with more cash than I thought it would.)
So last time I checked, Ventures had a liquidation value of around $643M. There are roughly 28.6M shares out Ventures outstanding (both A and B, pre-rights offering; the number may be a little off due to buybacks). Ventures at $44.85 gives a market cap of $1.56B. You can divide by 0.9375 to account for the dilution from the rights offering… this gives an adjusted market cap of $1.664B.
The difference between $1.664B and $0.643B can be thought of as the discount on Ventures’ various deferred tax liabilities. That’s a $1021M discount on $2,435M of total deferred tax liabilities. To put it another way, the market is saying that the $2,435M Ventures will have to pay in tax is worth about $1,414M right now. (Or you can say that it is similar to $1,414M in debt with a 8% interest rate due in 7.06 years. Or 6% interest rate debt due in 9.3 years.)
At $20-30 I will probably get interested in Ventures. I guess I am disappointed that it is trading so high. This memo to Liberty Interactive employees suggested a trading price of $20 for LVNTA shares (“20.0 LVNTA Market Price post-distribution”). Damn you efficient markets.
