LMCA - Liberty Media

[ItsAValueTrap]

The Time Warner cable call option is a liability.  I'm pretty sure it's tied to the equity investment in TWC (basically sold it off as convertible debt).  I could be wrong on that but I think the 2 positions effectively net out from an equity perspective.

Deep-in-the-money calls on a portion of Liberty Media's TWC stake.  (Ventures also has TWC shares.)

 

http://www.sec.gov/Archives/edgar/data/1611983/000104746914006379/a2220790zs-1.htm

Also included in Liberty Broadband is an investment in outstanding shares of Time Warner, which is classified as available-for- sale and is carried at fair value based on quoted market prices. As of December 31, 2013, the company has an outstanding written call option on 625,000 Time Warner shares with a strike price of $90.8420 per share which expires in August 2014. During 2014, the Company entered into a separate call option on 625,000 Time Warner shares with a strike price of $92.0232 per share which expires in November 2014.

[merkhet]

The Time Warner cable call option is a liability.  I'm pretty sure it's tied to the equity investment in TWC (basically sold it off as convertible debt).  I could be wrong on that but I think the 2 positions effectively net out from an equity perspective.

Deep-in-the-money calls on a portion of Liberty Media's TWC stake.  (Ventures also has TWC shares.)

 

http://www.sec.gov/Archives/edgar/data/1611983/000104746914006379/a2220790zs-1.htm

Also included in Liberty Broadband is an investment in outstanding shares of Time Warner, which is classified as available-for- sale and is carried at fair value based on quoted market prices. As of December 31, 2013, the company has an outstanding written call option on 625,000 Time Warner shares with a strike price of $90.8420 per share which expires in August 2014. During 2014, the Company entered into a separate call option on 625,000 Time Warner shares with a strike price of $92.0232 per share which expires in November 2014.

 

I did the math really quickly and didn't take into account taxes, but if they have 1.25 million in call liabilities @ $90 a share and the remaining amount @ $150 a share, then the total worth of their TWC shares is going to be around $250 pre-tax -- my basic question is whether people are looking at this as another source of cash for Liberty Broadband to deploy in the future.

[ItsAValueTrap]

Huh?  They sold calls on their TWC shares.

 

The core concept is this:

 

1- Selling a deep-in-the-money is extremely similar to selling a stock.

 

Suppose you have a stock with very large capital gains.  Such as Liberty's TWC shares (the cost basis is something ridiculously low I believe).  If Liberty sells the stock, it will have to pay capital gains tax right away.

But if Liberty sells a deep-in-the-money call option on the stock, it won't have to pay capital gains tax right away.  It will only have to pay tax when the call option expires.  So by selling a stock through options, Liberty effectively locks in the selling price without triggering capital gains.  It gets to defer the taxes.

 

2- Spotting this loophole, the IRS implemented rules against this.  If the option is too deep-in-the-money, the tax benefits of this trick won't count.

 

3- Liberty's options can probably be settled in cash or stock, at Liberty's choice.  So if Liberty settles the option in cash, it only has to pay tax on what it made or lost on the derivative transaction.

 

4- Yes the TWC shares are basically another source of liquidity for Liberty.

[merkhet]

Glenn,

 

We're not in disagreement... probably.

 

I merely meant that they've sold 1.25 million calls @ $90. When someone decides to exercise those calls, then they will receive $90 per share on those 1.25 million shares. (Also, I don't think they pay taxes when the options expire -- they only pay taxes on execution otherwise there is no transaction.)

 

The remaining non-1.25 million that have been spoken for could also be sold for market value -- and then they pay taxes on that.

 

So my very quick and sloppy pre-tax calculation is that the shares that Liberty Broadband owns are worth roughly $250 million pre-tax.

 

Am I missing something? I suppose I am a little confused on the tax on options expiration issue.

[merkhet]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

[Liberty]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

Personally, I prefer Malone's vehicles for a few reasons:

 

1) Malone has insider info on all these companies and if something bad is on the horizon, he'll make a move before others even know what's going on. I get that benefit by being with him rather than directly in the company.

 

2) Financial engineering. You get an added layer of buybacks, leverage, derivatives and options, tax manoeuvres and spin-offs.

 

3) You usually can buy at a discount to NAV.

 

4) Hidden assets. You never know what some overlooked thing in a dusty corner of the vehicle is going to be worth at some point. That's not where most of the value is, but it can be a nice bonus.

 

But it depends what you're looking for, as many of these can be negatives too.

[Guest wellmont]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

chtr is a less than 50% piece of LMCA. chtr is interesting in it's own right. lots of stuff going on. for one it's very leveraged. second, the spinoff/combination with cmcsa/twc is a big deal that the markets have yet to fully discount. also there is a good chance that chtr or the spinff entity will merge with cox. so when chtr sold off a bit last quarter it was a good opportunity to get involved in what promises to be a lot of potential value creation.

[merkhet]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

chtr is a less than 50% piece of LMCA. chtr is interesting in it's own right. lots of stuff going on. for one it's very leveraged. second, the spinoff/combination with cmcsa/twc is a big deal that the markets have yet to fully discount. also there is a good chance that chtr or the spinff entity will merge with cox. so when chtr sold off a bit last quarter it was a good opportunity to get involved in what promises to be a a lot of value creation.

 

Right -- that's exactly what I mean. Ownership of a share of Liberty Media is made up of the following:

 

50% Siri

25% Charter

12% Live Nation

13% Other Stuff

 

I'm wondering if we might not be better served taking the money we would have put into Liberty Media and splitting it into equal 1/3 ownership in Siri, Charter & Live Nation. Or whatever combination based on our own assessment of risk/rewards.

[Guest wellmont]

i'm kinda with liberty on this one. bet with malone. just like brk. but on occasion, just like with brk, if you see something out there that makes sense to look at on it's own, that's a valid strategy. but having a core position in liberty will be a good thing to have in the backpack over time. :)

[jay21]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

chtr is a less than 50% piece of LMCA. chtr is interesting in it's own right. lots of stuff going on. for one it's very leveraged. second, the spinoff/combination with cmcsa/twc is a big deal that the markets have yet to fully discount. also there is a good chance that chtr or the spinff entity will merge with cox. so when chtr sold off a bit last quarter it was a good opportunity to get involved in what promises to be a a lot of value creation.

 

Right -- that's exactly what I mean. Ownership of a share of Liberty Media is made up of the following:

 

50% Siri

25% Charter

12% Live Nation

13% Other Stuff

 

I'm wondering if we might not be better served taking the money we would have put into Liberty Media and splitting it into equal 1/3 ownership in Siri, Charter & Live Nation. Or whatever combination based on our own assessment of risk/rewards.

 

If you agree with LMCA's current asset mix, then buying LMCA will give you a higher notional exposure because they are levered and you are buying at a discount to NAV.  Also, buying back shares at a discount to NAV is good.  You also have upside optionality in new ideas that will probably appreciate as soon as they disclose a stake, which you might miss by buying the entities directly.

 

If do not agree with the asset mix, then you might be better buying which portion you think best.

[loganc]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

chtr is a less than 50% piece of LMCA. chtr is interesting in it's own right. lots of stuff going on. for one it's very leveraged. second, the spinoff/combination with cmcsa/twc is a big deal that the markets have yet to fully discount. also there is a good chance that chtr or the spinff entity will merge with cox. so when chtr sold off a bit last quarter it was a good opportunity to get involved in what promises to be a a lot of value creation.

 

Right -- that's exactly what I mean. Ownership of a share of Liberty Media is made up of the following:

 

50% Siri

25% Charter

12% Live Nation

13% Other Stuff

 

I'm wondering if we might not be better served taking the money we would have put into Liberty Media and splitting it into equal 1/3 ownership in Siri, Charter & Live Nation. Or whatever combination based on our own assessment of risk/rewards.

 

If you agree with LMCA's current asset mix, then buying LMCA will give you a higher notional exposure because they are levered and you are buying at a discount to NAV.  Also, buying back shares at a discount to NAV is good.  You also have upside optionality in new ideas that will probably appreciate as soon as they disclose a stake, which you might miss by buying the entities directly.

 

If do not agree with the asset mix, then you might be better buying which portion you think best.

 

In addition to the above point, look at the following repurchase transaction with CMCSA:

 

http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=796096

 

These types of transactions make owning LMC the far superior option.

[merkhet]

I think you guys might be right that betting with Malone is superior to betting on the underlying investment.

 

While I might think that parts of the asset mix are slightly suboptimal -- for instance, Live Nation might have higher per share FCF growth given that they have a lot more room for debt than Sirius -- this might be counterbalanced by the financial engineering that Malone can do at the Holding Company level given the seemingly perpetual discount to NAV.

[jay21]

I think you guys might be right that betting with Malone is superior to betting on the underlying investment.

 

While I might think that parts of the asset mix are slightly suboptimal -- for instance, Live Nation might have higher per share FCF growth given that they have a lot more room for debt than Sirius -- this might be counterbalanced by the financial engineering that Malone can do at the Holding Company level given the seemingly perpetual discount to NAV.

 

As BRK shows you, it's not an all or nothing position you need to take (i.e you can own both LMCA and its investee companies). So, for example, if you want LMCA to be a 10% position but want to tilt your exposure to Live Nation go 8% LMCA and 2% Live Nation. 

 

Advantages you have over Malone is that you can more easily shift your asset mix than him and aren't constrained by size. So maybe BRK's team is taking those advantages and they are tilting their exposure based on relative value and will switch up again some time later.  I don't think I am that good and will probably just stick with LMCA.

[muscleman]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

chtr is a less than 50% piece of LMCA. chtr is interesting in it's own right. lots of stuff going on. for one it's very leveraged. second, the spinoff/combination with cmcsa/twc is a big deal that the markets have yet to fully discount. also there is a good chance that chtr or the spinff entity will merge with cox. so when chtr sold off a bit last quarter it was a good opportunity to get involved in what promises to be a a lot of value creation.

 

Right -- that's exactly what I mean. Ownership of a share of Liberty Media is made up of the following:

 

50% Siri

25% Charter

12% Live Nation

13% Other Stuff

 

I'm wondering if we might not be better served taking the money we would have put into Liberty Media and splitting it into equal 1/3 ownership in Siri, Charter & Live Nation. Or whatever combination based on our own assessment of risk/rewards.

 

If you agree with LMCA's current asset mix, then buying LMCA will give you a higher notional exposure because they are levered and you are buying at a discount to NAV.  Also, buying back shares at a discount to NAV is good.  You also have upside optionality in new ideas that will probably appreciate as soon as they disclose a stake, which you might miss by buying the entities directly.

 

If do not agree with the asset mix, then you might be better buying which portion you think best.

 

In addition to the above point, look at the following repurchase transaction with CMCSA:

 

http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=796096

 

These types of transactions make owning LMC the far superior option.

 

Hi Guys,

    I am late to the thread, so I apologize if I ask newbie questions.

    1. Regarding these holdings, the total market cap of them seem to be around 15-16 bn. But LMCA is already trading at 16 bn. I don't see any discount to NAV here?

    50% Siri

25% Charter

12% Live Nation

13% Other Stuff

    2. Does LMCA holding company hold any addition cash as assets, other than the above stocks? and does it carry debt? Its balance sheet is hard to read because it consolidates SIRI balance sheet.

    3. The P/E of the above companies seem to be pretty high. How do you value cable companies and how much more would you expect the above stocks to go to?

 

 

Thanks a lot!

Muscle

[Wilson-TPC]

Anyone have a view on whether it's better to own Malone's companies or his investment vehicle?

 

I'm curious about this because of the fact that Weschler sold down some LMCA to buy CHTR.

 

chtr is a less than 50% piece of LMCA. chtr is interesting in it's own right. lots of stuff going on. for one it's very leveraged. second, the spinoff/combination with cmcsa/twc is a big deal that the markets have yet to fully discount. also there is a good chance that chtr or the spinff entity will merge with cox. so when chtr sold off a bit last quarter it was a good opportunity to get involved in what promises to be a a lot of value creation.

 

Right -- that's exactly what I mean. Ownership of a share of Liberty Media is made up of the following:

 

50% Siri

25% Charter

12% Live Nation

13% Other Stuff

 

I'm wondering if we might not be better served taking the money we would have put into Liberty Media and splitting it into equal 1/3 ownership in Siri, Charter & Live Nation. Or whatever combination based on our own assessment of risk/rewards.

 

If you agree with LMCA's current asset mix, then buying LMCA will give you a higher notional exposure because they are levered and you are buying at a discount to NAV.  Also, buying back shares at a discount to NAV is good.  You also have upside optionality in new ideas that will probably appreciate as soon as they disclose a stake, which you might miss by buying the entities directly.

 

If do not agree with the asset mix, then you might be better buying which portion you think best.

 

In addition to the above point, look at the following repurchase transaction with CMCSA:

 

http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=796096

 

These types of transactions make owning LMC the far superior option.

 

Hi Guys,

    I am late to the thread, so I apologize if I ask newbie questions.

    1. Regarding these holdings, the total market cap of them seem to be around 15-16 bn. But LMCA is already trading at 16 bn. I don't see any discount to NAV here?

    50% Siri

25% Charter

12% Live Nation

13% Other Stuff

    2. Does LMCA holding company hold any addition cash as assets, other than the above stocks? and does it carry debt? Its balance sheet is hard to read because it consolidates SIRI balance sheet.

    3. The P/E of the above companies seem to be pretty high. How do you value cable companies and how much more would you expect the above stocks to go to?

 

 

Thanks a lot!

Muscle

 

Buddy, it's 57% of Sirius XM. Look at the share breakdown I posted earlier.

 

Back of the napkin isn't going to cut it on this one.

[merkhet]

Wilson, I think muscleman got confused by what I posted earlier.

 

muscle, my post wasn't indicative of the valuation of Liberty Media but rather an illustrative sketch of what drives the valuation of each share. Each share of Liberty Media is driven roughly X% by Sirius, Y% by Charter, etc.

 

If you want to figure out NAV, you need to go here (http://www.libertymedia.com/asset-list.aspx) for the actual stakes per holding.

 

For instance, if you take the time to calculate it out, as I should have done originally, roughly 60% (not 50%) of each share of LMCA is driven by Sirius XM results and Liberty Media owns about 56% of Sirius XM. About 23% of each share of LMCA is driven by Charter results and Liberty Media owns 26% of Charter. About 6% (not 12%) of each share of LMCA is driven by Live Nation results and Liberty Media owns 27% of Live Nation. etc.

[merkhet]

So is anyone else out there making sure to buy their position in LMCA so that it's divisible by 20 and then adding another four shares so that you get the benefit of rounding up on the Liberty Broadband Series C rights? :P

 

Also, has anyone here ever exercised rights like these on IB and would like to share the process?

[ItsAValueTrap]

So is anyone else out there making sure to buy their position in LMCA so that it's divisible by 20 and then adding another four shares so that you get the benefit of rounding up on the Liberty Broadband Series C rights? :P

 

Also, has anyone here ever exercised rights like these on IB and would like to share the process?

 

I think you may or may not have to pay tax (e.g. withholding tax, if applicable) on the cash you get for any fractional shares.  There won't be any fractional rights, so if you bought 1 LMCA share you'd get 1 right I guess.

[merkhet]

So is anyone else out there making sure to buy their position in LMCA so that it's divisible by 20 and then adding another four shares so that you get the benefit of rounding up on the Liberty Broadband Series C rights? :P

 

Also, has anyone here ever exercised rights like these on IB and would like to share the process?

 

I think you may or may not have to pay tax (e.g. withholding tax, if applicable) on the cash you get for any fractional shares.  There won't be any fractional rights, so if you bought 1 LMCA share you'd get 1 right I guess.

 

I'm unclear about the tax-aspect of the extra right, but as far as I understand it, you get one LBRD(X) for every four LMC(X) shares that you hold -- and then you get one LRBDK right (Series C Rights) for every five LRBD(X) shares that you hold.

 

So just buying one extra LMCA share won't work. It has to be an extra four shares of LMCA so that you can get the one extra LRBDA share and get rounded up for the Series C Right. You basically want to be 0.2 over and not 0.2 under.

[merkhet]

Huh?  They sold calls on their TWC shares.

 

The core concept is this:

 

1- Selling a deep-in-the-money is extremely similar to selling a stock.

 

Suppose you have a stock with very large capital gains.  Such as Liberty's TWC shares (the cost basis is something ridiculously low I believe).  If Liberty sells the stock, it will have to pay capital gains tax right away.

But if Liberty sells a deep-in-the-money call option on the stock, it won't have to pay capital gains tax right away.  It will only have to pay tax when the call option expires.  So by selling a stock through options, Liberty effectively locks in the selling price without triggering capital gains.  It gets to defer the taxes.

 

2- Spotting this loophole, the IRS implemented rules against this.  If the option is too deep-in-the-money, the tax benefits of this trick won't count.

 

3- Liberty's options can probably be settled in cash or stock, at Liberty's choice.  So if Liberty settles the option in cash, it only has to pay tax on what it made or lost on the derivative transaction.

 

4- Yes the TWC shares are basically another source of liquidity for Liberty.

 

I just re-read this, and I think I understand why you said that the tax bill will come upon expiration. Additionally, I think I misread the blurb on the TWC calls.

 

Also included in Liberty Broadband is an investment in outstanding shares of Time Warner, which is classified as available-for- sale and is carried at fair value based on quoted market prices. As of December 31, 2013, the company has an outstanding written call option on 625,000 Time Warner shares with a strike price of $90.8420 per share which expires in August 2014. During 2014, the Company entered into a separate call option on 625,000 Time Warner shares with a strike price of $92.0232 per share which expires in November 2014.

 

It sounds like they have a call liability for 625,000 TWC shares @ a strike of $90.842 expiring in August 2014. Additionally, it looks like they own calls for 625,000 TWC shares @ a strike of $92.0232 expiring in November 2014.

 

Is anyone else reading it like that? The wording is somewhat nebulous by just saying "the Company entered into a separate call option" -- seems like it could go either way.

[dwy000]

It may be a forward starting call that basically extends the August maturity for another 3 months.  Otherwise, it being almost the end of August, they would have had the TW shares called away from them right around now.  But you're right, it's really confusing.  It's also annoying that they never say exactly how many TW shares they own - but they detail exactly how many are in the call option.  Are there any NOT subject to the call option?

[ItsAValueTrap]

It's also annoying that they never say exactly how many TW shares they own

I agree.

 

---

They own around 2,364,956 TWC shares.

 

1114753 + 203 + 1250000

 

http://www.sec.gov/Archives/edgar/data/1091667/000089882214000193/preliminary.htm

 

    Communication Capital Corp. (now known as Communication Capital, LLC), a wholly owned subsidiary of Liberty Media Corporation (“Liberty”), is the beneficial owner and holder of record of 1,250,000 shares of TWC Common Stock.  Communication Capital LLC, has entered into contracts to sell call options on the combined 1,250,000 shares of TWC Common Stock it owns since July 6, 2012, at various terms and with various counterparties. At expiration, Communication Capital LLC has elected to roll the contracts.  The contracts described below represent the current obligations of Communication Capital LLC:

 

Contract #1

Option Seller: Communication Capital LLC

Option Buyer: Wells Fargo

Trade Date: 11/19/2013

Final Expiration Date: 8/21/2014

# of Shares: 625,000

Call Strike: $90.8420

 

Contract #2

Option Seller: Communication Capital LLC

Notice of Intent to Nominate and Propose Business

Option Buyer: Credit Suisse

Trade Date: 8/21/2013

Final Expiration Date: 2/20/2014

# of Shares: 625,000

Call Strike: $91.6834

 

Liberty SIRI Marginco, LLC, a wholly owned subsidiary of Liberty, is the beneficial owner and holder of record of 1,114,753 shares of TWC Common Stock.

 

Liberty Programming Company LLC, a wholly owned subsidiary of Liberty, is the beneficial owner and holder of record of 203 shares of TWC Common Stock.

[dwy000]

Thanks.  That appears to be TWC stock though, not Time Warner.  The stock and option obligations going to Broadband appear to be Time Warner stock (not cable).  Am I mixing these up?

[dwy000]

Oops.  My dumb mistake - they refer to TWC as "Time Warner".  More confusion.

[merkhet]

Ah, so I guess they're both call option liabilities. I suppose they rolled Contract #2 over to November 2014...

 

Thanks Trap!