In the first quarter of 2013, two famous investors, Mario Gabelli and Tom Gayner, initiated long positions in Liberty Media Corp (NASDAQ:LMCA). While Tom Gayner bought only 42,000 shares in the company, Mario Gabelli purchased more than 850,000 shares in the first quarter. Let’s take a closer look to determine whether or not investors should own Liberty Media at its current trading price.
At the beginning of the year, Liberty Media Corp (NASDAQ:LMCA) completed its separation from Starz (NASDAQ:STRZA). Indeed, the Starz spin-off could potentially further unlock the hidden value in Liberty Media, as Liberty Media has been trading at a huge discount to its total asset portfolio due to its holding-company structure. After the spin-off, Liberty Media Corp (NASDAQ:LMCA) owns the consolidated subsidiaries including the Atlanta National League Baseball Club and True Position, Sirius XM Radio Inc (NASDAQ:SIRI), and Live Nation Entertainment, Inc. (NYSE:LYV).
John Malone has made a fortune from his investment in Sirius. Dated back to 2009, John Malone gave Sirius a $530 million loan in order to help Sirius emerge from bankruptcy. The loan carried quite a high interest rate, at 15%. In exchange, John Malone had preferred shares, which could be convertible to a 40% stake in Sirius. In January 2013, Liberty Media Corp (NASDAQ:LMCA) reported that it bought another 50 million shares of Sirius XM Radio Inc (NASDAQ:SIRI) at an average price of $3.15 per share. Thus, Liberty Media collectively owns 50.7% of Sirius’ total outstanding shares. Along with the recent move to control this radio broadcasting company, Liberty Media Corp (NASDAQ:LMCA)’s CEO Greg Maffei has become the new chairman of Sirius, with two new board nomination: David Zaslav, CEO of Discovery Communications Inc. (NASDAQ:DISCA), and John Malone.
Recently, Sirius XM Radio Inc (NASDAQ:SIRI) reported quite strong 2013 first quarter earnings results. Revenue came in at $897.4 million, 12% higher than the revenue of $804.7 million in the first quarter last year. Most of its revenue, $783.3 million, was generated from subscriber revenue. Net income also experienced a growth of 15% to $123.4 million. Operationally, its subscriber number reached a new record of 24.4 million, 9% higher than last year, while the subscriber acquisition costs (SAC) for gross addition decreased, from $60 in the first quarter last year to only $51. In the first quarter, Sirius XM Radio Inc (NASDAQ:SIRI) bought back 209 million shares on the market, bringing the total cash return to shareholders to $1 billion, including both special dividend and share repurchase since the end of 2012. Sirius is trading at $3.40 per share, with a total market cap of $21.64 billion. The market values Sirius quite expensively at as high as 21 times EV/EBITDA.
U.S. cable consolidation with Charter Communications
Recently, John Malone also showed his interest in Charter Communications, Inc. (NASDAQ:CHTR) via his acquisition of 26.9 million shares and 1.1 million warrants in the company, with a total transaction value of $2.6 billion, accounting for around 27.3% of the company. John Malone definitely wants to influence Charter, discussing the right to designate up to four board seats to Charter’s board. Charter is considered the fourth-biggest cable operator in the U.S., serving around 5.4 million residential and commercial customers. Most of Charter Communications, Inc. (NASDAQ:CHTR)’s revenue, $3.64 billion, was generated from the video product line, while Internet ranked second with $1.87 billion in revenue in 2012.