Barely one month after being spun off from Englewood, Colorado-based Liberty Media Group , Starz (NASDAQ:STRZA) appears to be shopping itself to interested buyers. Although the terms of any potential deal remain hazy, the company fully expects to be purchased by another media company during 2013. Possible buyers include media giants like CBS Corporation (NYSE:CBS) , Time Warner Inc. (NYSE:TWX) and Viacom, Inc. (NASDAQ:VIAB) . Meanwhile, Starz began trading as a separate company on January 14, 2013. CBS and Viacom, with about $1 billion in cash each, would need to get financing which shouldn’t be too difficult given both of the company’s assets and profitability. Time Warner, on the other hand, has over $3 billion available in cash so it wouldn’t need outside capital to make an acquisition.
Under the terms of the $3 billion spin-off, former Liberty Media Shareholders (LMCAV - defunct) were entitled to receive one share of "new" Liberty Media stock as well as one share of the new Starz stock. Shareholders who received the new Starz shares have already made a considerable profit on their investment: Since the completion of the spin-off, the stock has shot from $14.20 per share to its current range between $15.60 and $16.20. On January 15, it closed at $16.05 per share and had provided a return of approximately 13 percent in two days. Meanwhile, Liberty Media shares have remained range-bound between $108 and $110 per share.
Post Spin-off Businesses
After the spin-off, Liberty Media manages a reduced but still robust portfolio that consists of several well-known media, entertainment and logistics properties. Its largest single holding is a controlling stake in the Atlanta National Baseball Company. The company also owns Berwyn, Pennsylvania-based emergency-response company TruePosition as well as minority stakes in Barnes and Noble, SiriusXM and Time Warner Cable.
Starz's primary holdings are Starz and Encore, its two subscription-based cable movie channels. Despite its lack of diversification, the company is in a strong position. In fact, it was clearly the prop that held up Liberty during the two companies' long-standing marriage: Over the past several years, it has transferred nearly $2 billion in cash to its former parent. The company employs about 2,500 employees in Colorado.
With tremendous growth potential in the subscription-movie service space, Starz appears to provide an excellent value for current and potential shareholders. Although it was recently beaten by Netflix in a bidding war over the exclusive exhibition rights for certain syndicated Disney properties, this was widely seen as a strategic move to reduce its liabilities in preparation for the spin-off. With little debt and over $400 million in cash remaining on its books, it looks well-positioned to accept a buyout offer.
Should the company choose to pursue a deal, it could fetch well over $3 billion on the open market. Its Starz and Encore channels are included in the premium-subscription packages offered by virtually all of the major cable providers that operate in the United States. Starz enjoys an especially close relationship with Atlanta-based cable provider Cox Communications. With operations across a wide swathe of the American South, Cox recently partnered with Starz to launch a series of multi-platform services under the "PLAY" moniker.