Subscribe Feed (RSS)Liberty Media Spin-off Looks Like a Pass
December 16th, 2008 by john | Filed under Uncategorized.Liberty Media has announced a stock spin-off whose rationale isn’t all that clear to me. For anyone who hasn’t heeded warnings to stay clear of businesses that you can’t understand and Enron wasn’t reason enough for you, recent events should have provided enough confirmation.
Now this certainly does not mean that there isn’t a great opportunity buried in there somewhere and I intend to take some time to understand better what they are doing . . . if I can. And, just because I don’t get it doesn’t mean that it isn’t a good thing. It just means that I’d better watch out because if I don’t understand how it works, how am I ever going to tell when it is showing signs of ceasing to work in time to get out?
However, for now, it just isn’t clear if, how, and for whom this move is going to increase value. Is this another one of those bad times announcements that we have been seeing lately or is it a good idea? Don’t know, but there are so many imponderables and cross currents in this market right now that this one looks like one to watch perhaps, but most likely to just walk on by.
I would still take look at this. Greenblatt’s “You can be a….” describes Malone’s history of making things complicated so that he can choose the better piece of the pie and reduce taxes in the process.
LMDIA owns a controlling 52% of DTV. At current prices you get a 30%-40% discount on its DTV assets (public company, you have to substract debt), that I believe are also way cheap. Plus you get Starz Entertainment (cash flow positive) for free.
From what we have been told so far, yes, the asset based spin-off from the tracking stock will include DIRECTV (DTV) and Starz Entertainment and that could be a good deal at the present price of the tracking stock, but it does come with a $2B debt that was incurred to acquire that 52% of DIRECTV.
Perhaps as management said in the press release, putting these components into a separate, asset based entity will increase their value. However, nothing else is changing about these businesses. They are just being moved from one pocket to another in the same suit so to speak.
Fortunately we will have the SEC filings to find out exactly how it is going to happen