Sunday, December 03, 2006

The Liberty keiretsu

Liberty companies and associates:

Liberty Global (LBTYA, $27.30)
Discovery Holding (DISCA, $15.14)
Liberty Media Capital (LCAPA, $88.46
Liberty Media Interactive (LINTA, $22.84)

In trying to create a clear story at Liberty, the telecoms/cable wizard John Malone has messed things up. The proliferation of spin-offs, dual class shares, associated companies and tracking stocks has been nearly impenetrable. Until now, that is...

As a special holiday season gift to our readers we are today starting a multi-part series of posts which will attempt to cover all the angles on this out-of-control empire. The aim is to establish which bits are value plays.

Part One: Spaghetti

John Malone's TCI cable giant was merged into and then spat out by AT&T (T) around the turn of the century. Malone emerged as boss and major shareholder of the (relatively) simple Liberty Media Group, effectively his holding company. Through a series of deals Liberty had and has collected an impressive range of operating companies, still primarily in the cable and broadband areas, and a no less impressive array of passive stockholdings in some major media and internet groups.

Liberty Media Group suffered from a lack of respect for its eclectic tastes. There appeared to be a holding company discount and Malone tried to tackle this with some dish-of-the-month corporate finance ju-jitsu. The spin-offs came first -

Liberty Global (LBTYA, LBTYB) came loose in June 2004. It is a holding company for a smorgasbord of European and Japanese partially and wholly owned broadband and cable interests.

Discovery Holding (DISCA, DISCB) came next, in July 2005. This owns bits and bobs but is primarily the holding company for 50% ownership of the drool worthy Discovery channels.

While these appear to be clean breaks from the mother ship, they aren't. This is principally because Malone has large chunks of voting shares in each and is Chairman of one and CEO of the other. Hence our use of the keiretsu tag - it is the Japanese name for a loosely bundled group of companies with managers and shareholders in common.

Liberty Media (LCAPA, LCAPB, LINTA, LINTB) remains the major centre for Malone's operations, but as that Scrabble of tickers suggests, it has a number of moving parts. There are two sets of tracking stocks (all of the Malone vehicles partake in the melancholy business of dual classes with different voting rights). LCAPA/B is called

Liberty Media Capital. It tracks the Starz Entertainment cable and satellite channels, TruePostition (a cellphone location tracker (sounds exciting!)), On Command (which supplies movies to hotel rooms) and others. Perhaps more juicily, it includes Malone's pirate's chest of minority stakes in other media companies, namely News Corp (NWS, NWSa)), Time Warner (TWX), Sprint Nextel (S) and Motorola (MOT). Meanwhile LINTA/B is called

Liberty Media Interactive. It tracks the rest of Liberty Media, which are mainly interactive commerce businesses, most notably QVC but also owns significant stakes in IAC/Interactive (IACI) and Expedia (EXPE).

Both sets of trackers have their own allocations of debt and cash to boot. To whet your appetite we should say that in addition all Liberty associates employ some of the most obscure accounting imaginable to present their operations in a flattering light; so we shall be burning expensive midnight oil on your behalf in the posts to come! Here is a small table of the current market caps of the Liberty/Malone controlled stocks mentioned herein, to give you an idea of relative scale:

Name..............................................Market cap ($ billions)

Liberty Global...............................11.0
Discovery Holding.........................4.2
Liberty Media Capital...................12.4
Liberty Media Interactive.........16.0

Disclaimer: We have positions in nearly all stocks mentioned in this post.



Chuck Goldblum said...

Hi All -
I am a value investor and NY-based money manager with an investment in DISCA. If you are interested, I wrote a short summary on why I bought DISCA for my clients. I've kept it basic, but you may find it informative anyways. Here's the link.

StockReply said...

Thanks Chuck,

Good note. Not sure yet whether we're going to agree on your FCF yield, which looks a tad high but we're on it