John Malone prepares for a victory lap
NEW YORK, Feb 1 (Reuters Breakingviews) - If you climb into the saddle, be ready for the ride. Any investor who hit the trail years ago with John Malone will appreciate the old saying all too well: The trip has been decidedly bumpy. Now the cable cowboy’s Liberty Media (FWONA.O) empire is trotting out its trademark financial razzle-dazzle to try and wring additional value out of its assets. It should help the 81-year-old head slowly into the sunset on a high note.
Malone, Liberty Media’s chairman, is as renowned for his dizzying array of specialized equity issues, spinoffs and splits as he is for the telecom and entertainment companies that have been subjected to the intricate machinations. The latest round of financial engineering involves splitting off the Atlanta Braves baseball team and reorganizing Liberty’s portfolio of tracking stocks to create a new one for the company’s stake in Live Nation Entertainment (LYV.N), among other assets.
All the wheeling and dealing over the past two decades has worked out well, by the company’s own accounting. True to the spirit of inventiveness, Chief Executive Greg Maffei organizes the report card creatively. For one thing, he starts the meter in May 2006, soon after he joined the company. His methodology cobbles together the various tracking stocks, rights offerings, reinvested cash and more. “It All Adds Up,” the company crowed during an investor presentation in November, saying that a “composite” Liberty Media stock valued at $79 some 16-plus years earlier was now worth $1,255.
The implied 18% annualized return on investment trounces the 9% total shareholder return for the S&P 500 Index (.SPX) over the same stretch, as well as Walt Disney’s (DIS.N) 9.5% and cable giant Comcast’s (CMCSA.O) 10.1%, according to Refinitiv. Maffei’s timeline flatters the calculation, however. It excludes broadcaster Discovery, spun off from Liberty Media in 2005, and international broadband provider Liberty Global (LBTYA.O), hived off a year earlier. A more logical starting point would be 2001, when Malone carved Liberty Media out of telecom giant AT&T (T.N). That would also reveal a more modest return.
Regardless of the historical record, the latest slicing and dicing holds some promise. Over the years, Malone has straddled developments in programming and the way it’s piped into homes. This time he’s betting mainly on the value of content.
Take the Braves. Liberty Media is preparing to transition the baseball team from a tracking stock, designed to reflect the economic performance of its business, to a separately traded company fully backed by its assets. The outfit reported record revenue in 2021, when the team won the World Series, despite Covid-19’s harmful impact on attendance early in the season. Sales were up another 15%, to $535 million, through the first nine months of 2022.
Tracking stocks tend to trade at a discount because of their complicated structure and related corporate governance concerns. In this case, Liberty Media probably isn’t getting full credit from investors for the Braves’ sprawling real estate portfolio in Atlanta or the trophy value of a high-profile sports franchise. The planned spinoff should at least partly remedy this. Since Liberty unveiled the plan, the imputed value of the Braves has increased by 12% to about $1.9 billion. For some basis of comparison, hedge fund manager Steve Cohen paid $2.4 billion for the New York Mets in 2020.
Likewise, Liberty Media’s accompanying shakeup of its tracking stocks stands to further spotlight the value of Formula One. The company bought the owner of the commercial rights to the motor racing circuit in 2017, valuing the equity at $4.4 billion. Under Liberty Media’s stewardship, Formula One has expanded in the United States, leveraging a documentary series on Netflix to reach new fans beyond its core supporters in Europe, the Middle East and Asia. Maffei told investors he expects the company to generate nearly $500 million in revenue from an upcoming race in Las Vegas, the latest addition to the circuit. Ticket prices range from $500 to $15,000. There will be hefty costs involved, too, including the unconventional purchase of 39 acres of Sin City for the Grand Prix.
Formula One’s market capitalization is now almost $15 billion, and Bloomberg recently reported that Liberty Media had rejected an approach from Saudi Arabia’s Public Investment Fund to acquire the business for more than $20 billion. The latest reorganization may put it on a similar separation trajectory as the Braves.
Investors also should welcome Liberty Media’s decision to reshuffle its exposure to Live Nation Entertainment. The Ticketmaster owner has lost more than a quarter of its market value over the past year, as it faces fresh regulatory backlash after botching seat sales for Taylor Swift’s “Eras” tour. Stuffing Liberty Media’s roughly 30% stake in the embattled concert promoter into a new Liberty Live tracking stock isolates it from an approximately 82% holding in satellite radio operator Sirius XM (SIRI.O) and clears the way to better crystallize the value of each.
Although these sorts of structural maneuvers are familiar to Liberty Media shareholders, there’s something about this latest series that suggests the company is laying the groundwork for a more extensive cleanup of its empire. Malone told the New York Times in August that he’s keen to “stop going to board meetings, either virtual or physical,” and instead spend more time with his wife and on a boat. The Braves and Formula One set the stage for him to take a victory lap.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates with link and graphic.)
Liberty Media is scheduled to release its fourth-quarter results on March 1.
The company said on Nov. 17 it planned to split off the Atlanta Braves baseball team and its related real estate development project into a separately traded company and would create a new Liberty Live Group tracking stock, which will house its stake in Live Nation Entertainment and other assets.
It expects to complete the transactions in the first half of 2023.
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