LMCA - Liberty Media

[yadayada]

how can you see what these guys own? Hard to see now. What would be current discount to intrinsic value? ALso everyone keeps talking about buying BRK, but it seems to me LMCA could potentially be a better buy if you dont really have any other holdings. More upside over longer run then BRK? And Malone seems to be able to easily compete with buffett. ALlthough a slightly different aproach. Except hes 71 now? But i guess he can easily turn 90 years old.

[Liberty]

http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=846439

 

Today announced:

Plan to distribute via dividend two shares of Series C non-voting common stock ("LMCK") for each share of LMCA and LMCB

Plan to spin-off Liberty Broadband Group into a new publicly-traded company called Liberty Broadband

Purchase of 897 thousand Charter shares for $124.5 million, resulting in 26.4% beneficial ownership of Charter's equity

SiriusXM reported strong Q1 results

Subscriber base grew to 25.8 million

Revenue of $998 million, up 11% from the first quarter of 2013

Adjusted EBITDA(2) grew 28% to $335 million

Net income of $94 million

Repurchased 158 million shares through April 25, including shares from Liberty Media

Issued $1.5 billion of 6% Senior Notes due 2024 on May 6, 2014

Completed sale of last two tranches to SiriusXM of its shares for $340 million at $3.66 per share in April

Charter announced agreements with Comcast, which will make Charter the second largest US cable company; separately reported strong operating results

Live Nation reported solid results across all lines of business; announced Live Nation Channel on Yahoo to debut this summer

Completed sale of 90% of Liberty Media's stake in Barnes & Noble in April

[Yours Truly]

Anyone know the reason for the creation of the new Series C (LMCK)?

 

And somethings definitely cooking with all the raising of cash and selling of existing shares and my guess is that the majority of the funds will be used to assist Charter in their crusade to consolidate the entire cable industry.

[Liberty]

Anyone know the reason for the creation of the new Series C (LMCK)?

 

That's a good question. I doubt it's just because they already had the lawyers draft the papers for the SIRI merger attempt :D

 

Maybe they want to concentrate buybacks on the Series A common and so over time further consolidate management's voting power? Not that they truly need that...

 

And somethings definitely cooking with all the raising of cash and selling of existing shares and my guess is that the majority of the funds will be used to assist Charter in their crusade to consolidate the entire cable industry.

 

That's what it seems like to me too. They are capped at 34% of charter until 2016, iirc, so that leaves them some room.

[loganc]

Anyone know the reason for the creation of the new Series C (LMCK)?

 

That's a good question. I doubt it's just because they already had the lawyers draft the papers for the SIRI merger attempt :D

 

Maybe they want to concentrate buybacks on the Series A common and so over time further consolidate management's voting power? Not that they truly need that...

 

Maybe they complete the Broadband spinoff, let the C shares trade, and then reengage with SIRI about completing the merger into LMC.  I think it makes a lot of sense to pull the rest of SIRI into LMC, in my opinion.

[Liberty]

Maybe they complete the Broadband spinoff, let the C shares trade, and then reengage with SIRI about completing the merger into LMC.  I think it makes a lot of sense to pull the rest of SIRI into LMC, in my opinion.

 

Could be. By having the A/B/C shares be even more SIRI-centric, it makes the choice easier for SIRI shareholders. They could have achieved most of the same thing with just the Broadband split, though, but maybe they want the Cs to trade to show SIRI shareholders that being non-voting doesn't create much of a discount.

[ItsAValueTrap]

Why didn't they buy back more LMCA shares?

[Liberty]

Why didn't they buy back more LMCA shares?

 

They were prevented from buying (as was SIRI) during the merger attempt. That all took place during Q1, if memory serves me right, so that's a pretty long period during which they couldn't buy. They also bought more charter, which they might be conserving cash for if the TWC-Comcast deal goes through.

 

At least SIRI is back to repurchasing, which is almost the same as LMCA buying back.

[ItsAValueTrap]

On March 13 they announced that they were dropping the Sirius XM takeover.  So presumably during March 13 to 31, LMCA could have repurchased its shares???

 

http://www.sec.gov/Archives/edgar/data/1560385/000156038514000022/exhibit991lmcbroadbandtrac.htm

[Yours Truly]

Perhaps they see better value in utilizing the cash for potential acqusitions / assisting Charter right now OR perhaps they can utilize it to take a run at Time Warner if the acqusition fails

[ItsAValueTrap]

Well they did go out and pay down the margin loans and buy Charter shares (but not LMCA shares).

 

Do the margin loans have covenants that prevent spinoffs?  Because now Liberty Broadband will be a spinoff, not a tracker stock.  I haven't looked into the covenants of Liberty's bonds.  Sometimes Malone will spin off a company and the bondholders get screwed a little because they have less collateral/assets backing their debt.

[ItsAValueTrap]

Here's what I think is happening:

 

Liberty will run into limits regarding how much it can buy back its shares when they are undervalued.

 

1a- Suppose investors put in $1000 into a fresh corporation.

The corporation invests all of it in a single stock.

The stock doubles.

The deferred tax liability would be $350 (assuming 35% tax rate).

If the corporation were liquidated, then the proceeds would be $1,650.

However, if the corporation isn't liquidated, then the deferred tax liability of $350 has a present value much less than its book value.

The real value of the corporation is somewhere between $1650 and $2000.

If the corporation is trading in that price range, it is undervalued but it can't actually arbitrage its shares by buying back its shares and selling some of its $2000 in stock.

 

1b- In a way, Liberty sold Sirius and BKS shares to repurchase its stock.  So it did engage in the arbitrage described above.

 

2- It could buy back shares with the money raised from issuing debt.

 

The problem with this is that the company can get into trouble if its debt load is too high.

 

Liberty has already done this to some degree.  It probably shouldn't go too crazy with debt.

 

3- Liberty used some of its free liquidity to buy Charter shares instead of LMCA shares.

 

I'm guessing it did this to avoid becoming an investment company.  (???)  If that happened, a lot of the things that Malone does may not be allowed.

 

http://www.libertymedia.com/ir/pdfs/att_liberty.pdf

 

http://www.sec.gov/Archives/edgar/data/1082114/000094018099001048/0000940180-99-001048.txt

 

Our operations are subject to constraints imposed by the Investment Company

Act. Our operations are primarily conducted through subsidiaries and business

affiliates, and certain of our investments in those companies have been made

with strategic partners where we have a less than 50% voting interest. Under

the Investment Company Act of 1940, a company that is deemed to be an

"investment company," and which is not exempt from the provisions of the

Investment Company Act, is required to register as an investment company under

that Act. Registered investment companies are subject to extensive, restrictive

and potentially adverse regulation relating to, among other things, operating

methods, management, capital structure, dividends and transactions with

affiliates. Registered investment companies are not permitted to operate their

business in the manner Liberty operates its business, nor are registered

investment companies permitted to have many of the relationships that Liberty

has with its affiliated companies.

 

  Liberty's current holdings in its subsidiaries and business affiliates are

such that Liberty is not an "investment company" required to register under the

Investment Company Act, and Liberty intends to conduct its business in a manner

designed to avoid becoming subject to regulation under that Act. To avoid

regulation under the Investment Company Act, Liberty's operations will to an

extent be limited by concerns that it acquire investments in companies that

assure to it majority ownership or primary control of a magnitude sufficient to

cause Liberty not to fall within the definition of an investment company. These

considerations could require Liberty to dispose of otherwise desirable assets

at disadvantageous prices, structure transactions in a manner that assures

Liberty has a majority interest or primary control, irrespective of whether

such a structure is the one that is most desirable, or avoid otherwise

economically desirable transactions, including the addition of strategic

partners in Liberty's current majority-owned subsidiaries and business

affiliates that it primarily controls. In addition, events beyond our control,

including significant appreciation in the market value of certain of our

publicly traded investments that may be deemed investment securities, could

result in our becoming an inadvertent investment company. If Liberty were to

become an inadvertent investment company, it would have one year to divest of a

sufficient amount of investment securities and/or acquire other assets

sufficient to cause Liberty to no longer be an investment company subject to

registration under the Investment Company Act.

 

  If it were established that Liberty is an unregistered investment company,

there would be a risk, among other material adverse consequences, that we could

become subject to monetary penalties or injunctive relief, or both, in an

action brought by the SEC, that we would be unable to enforce contracts with

third parties or that third parties could seek to obtain rescission of

transactions with us undertaken during the period it was established that we

were an unregistered investment company.

[Liberty]

Update from Glenn:

 

http://glennchan.wordpress.com/2014/05/12/lmca-update-may-2014/

 

Glenn, what's your view on the Liberty Broadband offering? A good deal, or do you see a reason to not partake?

[ItsAValueTrap]

It should be good.

 

I'm not sure why you would want to avoid it.

 

I'd probably hang onto the rights, exercise them, and subscribe for the over-allotment option (if it's offered).  The over-allotment for LVNTA rights was very small (less than 1% didn't exercise) but free money is free money.

[muscleman]

presentation about Liberty entities from Denali in 11/2013, including nice historical review.

 

http://www.denaliinvestors.com/letters_public/THE%20MALONE%20COMPLEX%20by%20DENALI%20INVESTORS.pdf

 

“For more than 15 years of running TCI, what drove Malone was

a determination to create the biggest and most cash-efficient

cable operator in the country… Yet, for all this, his stake was

puny: a tiny fraction of 1% in 1991.”

 

That’s what created  Liberty… And it worked.” - Malone

 

This presentation didn't explain why buying at $130 per share is a good deal. It just gave a narrative of the history and explained how Malone screwed existing shareholders by creating the rights offering of Liberty Media from TCI with very limited documents and vague explanation.

 

So if I buy LMCA today and stay away from the market for the next 2 years, may I get screwed again if he does another rights offering?  ::)

[giofranchi]

This presentation didn't explain why buying at $130 per share is a good deal. It just gave a narrative of the history and explained how Malone screwed existing shareholders by creating the rights offering of Liberty Media from TCI with very limited documents and vague explanation.

 

So if I buy LMCA today and stay away from the market for the next 2 years, may I get screwed again if he does another rights offering?  ::)

 

Right now LMCA is selling below NAV: I think that’s the reason why you'll do well in coming years! ;)

 

The fact investors were sleeping at the wheel, while Mr. Malone was engineering great deals, is clearly not Mr. Malone’s fault! ;)

 

Gio

 

[Guest wellmont]

presentation about Liberty entities from Denali in 11/2013, including nice historical review.

 

http://www.denaliinvestors.com/letters_public/THE%20MALONE%20COMPLEX%20by%20DENALI%20INVESTORS.pdf

 

“For more than 15 years of running TCI, what drove Malone was

a determination to create the biggest and most cash-efficient

cable operator in the country… Yet, for all this, his stake was

puny: a tiny fraction of 1% in 1991.”

 

That’s what created  Liberty… And it worked.” - Malone

 

This presentation didn't explain why buying at $130 per share is a good deal. It just gave a narrative of the history and explained how Malone screwed existing shareholders by creating the rights offering of Liberty Media from TCI with very limited documents and vague explanation.

 

So if I buy LMCA today and stay away from the market for the next 2 years, may I get screwed again if he does another rights offering?  ::)

 

documents were complete and in accordance with SEC guidelines. anybody who read the offering documents (like Greenblatt did) had a chance to buy the original liberty in the rights offering. They also could have bought it on the open market for a fraction of it's true value. But people don't read stuff like that. They'd much rather focus on the twitters and Teslas of the world. :) if you bought lmca today I certainly would pay attention. If you don't you will miss a chance to oversubscribe in the rights offering of liberty broadband. Buy all rights!

[giofranchi]

documents were complete and in accordance with SEC guidelines. anybody who read the offering documents (like Greenblatt did) had a chance to buy the original liberty in the rights offering. They also could have bought it on the open market for a fraction of it's true value. But people don't read stuff like that. They'd much rather focus on the twitters and Teslas of the world. :) if you bought lmca today I certainly would pay attention. If you don't you will miss a chance to oversubscribe in the rights offering of liberty broadband. Buy all rights!

 

Yeah! That's exactly what I meant! ;)

 

Gio

[saltybit]

presentation about Liberty entities from Denali in 11/2013, including nice historical review.

 

http://www.denaliinvestors.com/letters_public/THE%20MALONE%20COMPLEX%20by%20DENALI%20INVESTORS.pdf

 

“For more than 15 years of running TCI, what drove Malone was

a determination to create the biggest and most cash-efficient

cable operator in the country… Yet, for all this, his stake was

puny: a tiny fraction of 1% in 1991.”

 

That’s what created  Liberty… And it worked.” - Malone

 

This presentation didn't explain why buying at $130 per share is a good deal. It just gave a narrative of the history and explained how Malone screwed existing shareholders by creating the rights offering of Liberty Media from TCI with very limited documents and vague explanation.

 

So if I buy LMCA today and stay away from the market for the next 2 years, may I get screwed again if he does another rights offering?  ::)

 

I think this just means that you should follow where John Malone's holdings are. (like what ItsAValueTrap has been saying)

I guess if you stay away from the market for 2 years, that could be true, haven't done the analysis of previous transactions and am not clairvoyant :)

[rohitc99]

I am new to this, so pardon my ignorance. How does one subscribe to right ? also how can one oversubscribe to the offer ?

 

does it differ for a tax deferred account ?

 

thanks in advance

[Liberty]

I am new to this, so pardon my ignorance. How does one subscribe to right ? also how can one oversubscribe to the offer ?

 

does it differ for a tax deferred account ?

 

thanks in advance

 

I'm also new to this, but here's some advice that Wellmont posted:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lmca-liberty-media/msg165946/#msg165946

[rohitc99]

I am new to this, so pardon my ignorance. How does one subscribe to right ? also how can one oversubscribe to the offer ?

 

does it differ for a tax deferred account ?

 

thanks in advance

 

I'm also new to this, but here's some advice that Wellmont posted:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lmca-liberty-media/msg165946/#msg165946

 

thanks ...that explains it well

[Ross812]

Would anyone mind checking my understanding of the May 8th release about the upcoming spinoffs and dividends?

 

Issuance of Series C Common Stock

 

Liberty Media's board has approved the issuance of shares of its Series C common stock to holders of its Series A and Series B common stock, to be effected by means of a dividend. Holders of Series A and Series B common stock as of 5:00 p.m. E.D.T. time on July 7, 2014, the record date for the dividend, will receive on July 10, 2014 a dividend of two shares of Series C common stock for each share of Series A or Series B common stock held by them as of the record date.

 

Spin-Off of Liberty Broadband

 

Liberty Media's board has authorized management to pursue a plan to spin-off to its stockholders common stock of a newly formed company to be called Liberty Broadband and to distribute subscription rights to acquire shares of Liberty Broadband's common stock. Liberty Broadband would be comprised of, among other things, Liberty Media's (i) interest in Charter Communications, (ii) subsidiary TruePosition, (iii) minority equity investment in Time Warner Cable and (iv) certain deferred tax and deferred revenue liabilities, as well as liabilities related to the Time Warner call option. In the spin-off, record holders of Series A, Series B and Series C common stock would receive one-fourth of a share of the corresponding series of Liberty Broadband common stock for each share of common stock held by them as of the record date for the spin-off, with cash in lieu of fractional shares. In addition, stockholders will also receive a subscription right to acquire one share of Series C Liberty Broadband common stock for every five shares of Liberty Broadband common stock they receive in the spin-off.

 

The subscription rights are being issued to raise capital for general corporate purposes of Liberty Broadband and will enable the holders to acquire shares of Series C Liberty Broadband common stock at a 20% discount to the 20-trading day volume weighted average trading price of the Series C Liberty Broadband common stock following the completion of the spin-off. We expect the subscription rights to become publicly traded once the exercise price has been established and the rights offering to expire forty trading days following the completion of the spin-off.

 

The spin-off and rights offering are intended to be tax-free to stockholders of Liberty Media and the completion of the spin-off and commencement of the rights offering will be subject to various conditions, including the receipt of an opinion of tax counsel. Subject to the satisfaction of these conditions, the completion of the spin-off and the commencement of the rights offering is expected to occur in the second half of 2014.

 

So a holder of 100 shares of LMCA will receive:

 

10 July - 200 shares of LMCK (Liberty C series)

 

? Date - (100 LMCA) * .25 = 25 shares of LRDA

            (200 LMCK) * .25 = 50 shares of LRDC

            (25 LBRDA + 50 LBRDC) = 75/5 = subscription rights to purchase 15 shares of LBRDC at 20% below market price.

 

So if the over-subscription was exercised a holder of 100 shares of LMCA will end with:

 

100 - LMCA

200 - LMCK

25- LBRDA

65 - LBRDC

 

To oversubscribe:

 

Here's my experience at tda. other brokers may do it differently. you will see the rights in your account a few days after they are issued. don't worry if you don't see them right away. once they are in your account call up your broker and ask for the "reorg" department. Tell them you would like to "exercise all Liberty rights". Then tell them (if you intend to) that you wish to oversubscribe for the maximum number of shares you are allowed. they should tell you this number.

 

Here's the thing. You have to have the cash in your account (or margin) for 100% of the potential amount you are on the hook for with your request (basic + oversubscription). this amount will be deducted from your account for the duration of the offering period until your shares are purchased. To the extent you don't get the maximum shares that you requested via oversubscription (and you won't), you will get that money returned to you. It makes sense to do all this during the last week or two of the offering period. Because they are taking cash from your account and you won't have use of it. Good luck. Your broker will walk you through this.

 

Am I missing anything?

[Guest wellmont]

there is a good article on morningstar about rights offerings....

 

type this into google

 

"Rights Offerings: Have Your Cake and Eat It, Too"

[Guest wellmont]

keep in mind that you very likely will not get close to all of the shares you oversubscribe for. especially in liquid offerings when rights are transferable. but it never hurts to try for the max. this is where your profits come in...