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June 05, 2009
Liberty Media Entertainment: New Long Position Provides Cheap Play on DirecTV and Other Goodies
I took a new position in Liberty Media Entertainment Group (LMDIA) today. LMDIA is being acquired by DirecTV (DTV). LMDIA owns 54% of DTV along with several billion dollars in other assets composed primarily of the Starz movie channels, three regional sports networks, and cash. When the deal closes near year end, each LMDIA will have turned into 1 share of DTV and a stub containing the majority of LMDIA's non-DTV assets. I think the stub is worth at least $4 per LMDIA share, so buying one share of LMDIA today at $23.65 nets you $26 (one share of DTV at $22.10 plus the $4 stub).
That is a pretty nice discount on its own but I think there is more upside as both DTV and the stub could have upside. DTV could rise to the upper $20s if my current expectations for earnings and cash flow growth in 2009 and 2010 are met. In addition, although I do not anticipate it will happen there are persistent rumors that DTV will be sold to AT&T or Verizon. The stub, which will consist primarily of Starz and cash, could be undervalued by a few dollars depending on valuation assumptions for the movie channels. I believe my $4 assumption is conservative, representing just 6 times operating cash flow for an asset forecast to have double digit growth for the next five years.
The bottom line is that purchasing LMDIA today provides a nice combination of offense and defense. Offense comes from the fact that LMDIA's primary assets (DTV and Starz) are undervalued. Defense is in the form of the 10% discount at which LMDIA can be purchased compared to today's price for DTV and a conservative assessment of the value of Starz.
I'll post a more complete analysis next week. In the meantime, here is an analysis of the merger I wrote in February when it was just a rumor. Click on the "download file" link to see a full listing of LMDIA's assets.
Posted by Steve Birenberg at June 5, 2009 09:16 AM in DTV
Steve,
i have excel97 and can't open the spreadsheet you posted in your previous article. Any chance you could post your lmdia analysis in a text file?
Thanks!
Posted by: lmdia at June 13, 2009 08:17 PMWhen I hit the twitter box on the left side of your blogs.a sign comes up that indicates that there is a problem with the server and that the twitter comments cannot be found. Am I doing something wrong or is there indeed some problem with the server. In the past,your list of twitter topics would come up automatically when I accessed your blogs.
Posted by: mp at June 17, 2009 08:28 PMTwitter link "follow me on twitter" works fine for me when I click it. NOt sure what to tell you. Try clearing your cache or cookies related twitter.
Posted by: at June 17, 2009 08:35 PM