Finding Opportunity In Liberty Media’s Complex Structure

By: Bullish Bankers Sunday, March 15, 2009 3:52 AM

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Liberty Media (LMDIA: 17.52, -0.48 (-2.67%)) has been in the news a lot lately, due to CEO John Malone’s recent bailout of Sirius XM Radio (SIRI: 0.198, +0.0066 (+3.45%)). This article is not about that deal, however. This article is an attempt to explain the structure of Liberty Media, which is sure to confuse most amateur investors, as well as some professional ones. This is because Liberty uses “tracking stocks,” which have not been popular since the dot-com days of the 90’s.

According to investopedia.com, a tracking stock is a “common stock issued by a parent company that tracks the performance of a particular division without having claims on the assets of the division or the parent company.”

When a parent company issues a tracking stock, all revenue and expenses of the applicable division are separated from the parent company’s financial statements and bound to the tracking stock. Often, this is done to separate a subsidiary’s high-growth division from a larger parent company that is presenting losses. However, the parent company and its shareholders still control the operations of the subsidiary.

Liberty Media is a holding company of many media assets. These assets are split into three tracking stocks: Liberty Capital (LCAPA: 5.17, +0.03 (+0.58%)), Liberty Entertainment (LMDIA: 17.52, -0.48 (-2.67%)), and Liberty Interactive (LINTA: 3.02, +0.08 (+2.72%)). Each of these tracking stocks represents Liberty’s ownership of a wide range of assets. Below I have broken down some of each stock’s notable holdings.

Atlanta Braves National League Baseball Club - 100% Ownership
Owner of the Atlanta Braves baseball team, as well as several of the Atlanta Braves’ minor league clubs.

Embarq Corporation (EQ: 33.80, -0.43 (-1.26%)) - 3% Ownership
A provider of a suite of communications services to consumer and business customers; including such services as local and long distance voice, data, high speed internet, wireless and entertainment services.

Hallmark Entertainment Investments Co. - 11% Ownership
Owner of controlling interest in Crown Media Holdings Inc. (CRWN: 1.77, -0.23 (-11.50%)), the owner and operator of U.S. cable television channels, including the Hallmark Channel.

Kroenke Arena Company, LLC - 6.5% Ownership
Owner of the Denver Nuggest NBA team, the Colorado Avalanche NHL team, and the Pepsi Center in Denver, Colorado.

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3/17/2009 11:53:09 AM General Partner by Hedgie I completely agree that LMDIA is grossly undervalued. One has to remember, though, that it has debt as well as assets. By my calculations, it is nonetheless at least 25% below NAV. And one can hedge out part of the exposure to DTV and in effect get some shares of DTV and all of the other assets of LMDIA for free. Reply Rating: (0) (0)

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The above story is the opinion of the author only and it does not reflect iStockAnalyst opinion. Further, the author is not personally advising you regarding the suitability of the story for your investment needs. In no event iStockAnalyst will be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from or arising out of, or in connection with the use of this information. Please consult your investment advisor before making any investment decision.

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