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.
Consolidating Sirius
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.
In the first quarter 2013, Charter managed to narrow its loss from $94 million, or $0.95 per share last year to $42 million, or $0.42 per share. The loss has been narrowed due to the increasing revenue of the Internet and video segments, offsetting by the shrinking telephone business. After good earnings results and John Malone’s stake announcement, Charter’s share price shot up to $110.80 per share, which means that Charter is now worth more than $11.1 billion on the market. The market values Charter Communications, Inc. (NASDAQ:CHTR) at nearly 9 times EV/EBITDA. Liberty Media Corp (NASDAQ:LMCA) seems to be expensively valued as well–at $121 per share, Liberty Media is worth $14.7 billion on the market. The market values the company at more than 35 times EV/EBITDA.
My Foolish take
In order to value Liberty Media properly, investors should value its holdings and the potential of consolidation benefits. It seems that John Malone aims for the global consolidation of the cable businesses around the world. Many investors think that Charter could be used as “an industry consolidator” for the cable business in the U.S. This move could be quite beneficial for Liberty Media Corp (NASDAQ:LMCA) and its shareholders in the long run.
The article This Media Company has a Lot of Potential originally appeared on Fool.com and is written by Anh HOANG.
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