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November 08, 2014

Liberty Media Splits in Two to Drive Value Creation

The big news surrounding Liberty Media’s (LMCA/LMCK)) quarterly earnings was the split of LMCA into two companies as shareholders received one share of Liberty Broadband (LBRDA/LBRDK) for every four shares of LMCA/LMCK.

LMCA/K now is dominated by its 57.5% ownership stake in Sirius XM Satellite Radio. Sirius now represents over 7% of LMCA/K net asset value. Another 10% is a 35% ownership stake in Live Nation Ticketmaster. Sirius and Live Nation had both reported good quarterly results prior to LMCA/K’s report so there was little new information in the latest earnings report from LMCA/K. The reasoning behind splitting Liberty into two companies is so that each new Liberty more closely tracks its underlying asset value. LMCA/K trades at about a 15% discount to its net asset value, an unwarranted large discount given the lack of complexity now that Sirius dominates the asset value. Closing of that discount and continued 20% growth in cash flow at Sirius should produce a superior return for LMCA/K shareholders over the next year. LMCA/K shares are unchanged this year and catch up move now that the split is complete should take place. Future plans for the stake in Sirius – a possible merger or spin-off could become clearer at Liberty’s analyst meeting later this month. We plan to attend.

LBRDA/K holds a 27% stake in Charter Communications (CHTR) and a few other assets. CHTR represents 95% of the net asset value of LBRDA/K. CHTR has been leading cable industry growth this year and is poised for continued gains after it sells, swaps, and buys subscribers from Comcast post the completion of the Comcast-Time Warner Cable merger in the first half of 2015. LBRDA/K trade at a 9% discount to net asset value which I expect to grow nicely as CHTR continues to operate well and then benefits form the transactions with Comcast. Additional upside will come from a rights offering of LBRDA and LBRDK shares coming in December when shares holders will receive for every five LBRDA and LBRDK shares entitling purchase of additional shares at a 20% discount. Northlake intends to exercise those rights and increase ownership of LBRDA and LBRDK in client accounts.

LMCA, LMCK, LDRBA, and LBRDK are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov. LMCA, LMCK, LDRBA, and LBRDK are net long positions in the Entermedia Funds. Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.

Posted by Steve Birenberg at November 8, 2014 02:55 PM in LCAPA