John Malone’s insider trading

I’ve been trying to figure out why Malone sold shares of LMCA a few days ago.  (I don’t have a great answer.)  A year ago he bought a smaller number of shares in LMCA at prices very similar to his recent sale.

Note that you should not necessarily read too much into Malone’s insider trading.  In the market panic of 2008/9, you should have bought Liberty Capital (to make several times your money) despite Malone’s massive insider selling (due to a suspected margin call).  Some of his trades represent an immaterial portion of his overall stake in that particular company.  He may be simply “painting the tape” in the hopes that other people read too much into insider trading.

Here is a compilation of John Malone’s insider trading based on his SEC filings.

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(Malone) Tracking stocks versus spinoffs

Advantages of spinoffs

Spinoffs can hurt bondholders if the debt covenants are weak and allow the company to spin off significant assets backing the debt.  This benefits the equity as the spin-off that is unencumbered with debt can issue debt at lower rates.

Spinoffs make a company easier to understand and allow more institutional investors to own the stock (e.g. sector/industry-specific funds).  This may increase the share price.  This can generate value if the stock is used as acquisition currency in rolling up poorly-managed companies (e.g. LBYTA).

Advantages of tracking stocks

(LMCA/LBTYA) Malone’s cable strategy

Here’s how I see it.

Some people are superstars at operating a cable company while the majority of people are bad at it.  One way to figure out who the superstars are is to figure out how much money is made per home passed.  Liberty’s investor day presentation uses adjusted EBITDA per home passed, which is a rough proxy for this.  (I would prefer to subtract maintenance capex from adjusted EBITDA.)  Each home passed represents a potential customer.  Good operators will turn a high percentage of its homes passed into customers and sell them as many services as possible (television, premium channels, Internet, voice, video-on-demand, etc.).

Liberty’s investor day presentation (PDF) compares various cable companies: