by Demian Russian
Liberty Media Corporation (Nasdaq: LCAPA, LCAPB, LINTA, LINTB, LSTZA, LSTZB) reported second quarter financial and operating results for Liberty Capital group, Liberty Interactive group and Liberty Starz group today. Liberty Media’s 40% stake in Sirius XM Radio (NASDAQ: SIRI) is currently represented in its Liberty Capital tracking stock group. Although Liberty Media did not report full results for Liberty Capital (NASDAQ: LCAPA, LCAPB) at the time of the conference call, they did disclose that Liberty Capital’s operating loss increased by $64 million in Q2, while revenue increased by 1%. Liberty Capital Group’s Starz Media recorded an impairment charge of $42 million, due to a number of its movie titles not garnering as much theatrical, home video, and television revenue as has been expected.
“We significantly reduced debt at Liberty Interactive and Liberty Capital and continued to repurchase stock at Liberty Capital. We made progress on our split-off of Liberty Capital and Liberty Starz, filing our private letter ruling request with the IRS and a lawsuit seeking to clarify aspects of our indenture position.”
–Greg Maffei, Liberty President and CEO
Liberty Media reported that it had continued to repurchase Liberty Capital Series A common stock (NASDAQ: LCAPA) during the second quarter. Between May 3rd and July 30th, 2010, Liberty purchased 8 million more shares of its LCAPA stock at an average cost of $43.11 per share. This equates to a total cash consideration of $344.3 million. Liberty reported that they had repurchased a total of 44 million shares of its LCAPA stock, at an average cost of $20.78 per share, since Liberty Capital’s reclassification on March 4th, 2008. The total LCAPA stock repurchases to date equate to a total cash consideration of $914.5 million, and the total repurchases represent 34.1% of the LCAPA shares outstanding.
What’s interesting about this is, while Liberty Media has approximately $740 million remaining under its Liberty Interactive stock repurchase authorization and approximately $447 million remaining under its Liberty Starz stock repurchase authorization, Liberty only repurchased shares of its Liberty Capital tracking stock (LCAPA) during the second quarter. Liberty still has approximately $185.5 million remaining under its Liberty Capital stock repurchase authorization. While the Liberty Capital tracking stock group represents a variety of Liberty Media’s investments, Sirius XM Radio is currently LCAPA’s largest holding. Liberty also announced that it had applied proceeds from the settlement of equity collars to reduce debt at Liberty Capital by $379 million.
In June, Liberty Media announced that it intended to spin off Liberty Capital and Liberty Starz from Liberty Interactive to form a new company called “Newco,” which would then be divided into two separate tracking stock groups, “Newco Capital” and “Newco Starz.” Newco Capital would track the assets currently attributed to Liberty Capital group and Newco Starz would track the assets currently attributed to the Liberty Starz group. Last Friday, Liberty Media Corporation announced that they, along with their subsidiary Liberty Media, LLC, had filed a lawsuit against The Bank of New York, as the bank is trustee under the indenture governing Liberty Media, LLC’s public indebtedness. Liberty’s suit seeks injunctive relief and a declaratory judgement by the court that the previously announced plan to split-off the businesses, assets and liabilities currently attributed to Liberty Media Corporation’s Liberty Capital and Liberty Starz tracking stock groups will not constitute a disposition of substantially all the assets of Liberty Media, LLC under the indenture.
During the second quarter Liberty Interactive group’s revenue increased 6% to $2.1 billion, while operating income increased 3% to $274 million, mainly due to favorable results from QVC. Liberty Starz group’s revenue increased 4% to $311 million, while operating income increased 28%, mainly driven by Starz Entertainment results. Starz original series, The Pillars of the Earth, was reported to be a solid performer.
Position: Long SIRI
Contact the Author: demianrussian@satelliteradioplayground.com
Thank you for the commentary, always good insight. I personally just invested in SIRI after the most recent earnings release. I think we have some solid performance coming for the balance of this year for Sirius.
True Chris,however,it seems nothing seems to make the stock really move or stay up for long.
I feel a buyout is our only chance and if Mel is a man of his word he said double digits.
There is now way Mel Karmazin is selling cheap. He NEVER has.
When Mel took over Infinity Broadcasting the PPS was $17.00, he took it to $114.00 before selling to CBS. He did the same with Viacom. This is what Mel does folks.
$170 not $114.
Everyone is dreaming. Mels stock options are at .60 cents. I see a Malone buyout at $1.75-$2.00. At that price Mel walks away with 200 million!!
Joe,don’t forget Mel put out of pocket close to $40 million with an average stock price of around $5.00 a share.
Don’t forget he told the world he will not sell unless in double digits,he so far is a man of his word.
Mel said he will not sell Sirius unless the stock price offer is in double digits,do you think he has a choice.
The company is doing alot better is it worth $10.00 a share in a buyout.
Why doesn’t Siri start buying it’s stock back.
I am going to quote Homer in reference to this question of a buyback of stock since it makes the most sense to me:
“While I agree with you in theory, you have to look at the practicality of it. It takes more than profits to be able to use cash for debt/share repurchases — you need cashflow.
Yes, Sirius had a solid quarter of FCF — however in the first half of 2010, their FCF is a negative $18MM. We know Sirius is guiding towards $150MM in FCF for the year — so that tells me that they’re estimating doing at least $168MM in FCF over the second half of 2010.
We also know that their cash balance at the end of Q2 was $258MM; and they have no real debt balances due in the remainder of 2010. So it’s conceivable to think that Sirius will end the year with over $400MM in cash on hand.
So the question at hand — how much of that do you designate for a stock repurchase? Keeping in mind that they have minimum cash balances that they need to keep, per some of their debt covenants. Let’s say they repurchase $150MM worth of equity — at an average pps of $1.10… that will take out only 136MM shares, which is only 3% of the outstanding.
Let’s also keep in mind that Sirius has $230MM worth of Notes coming due next year (about 14 months). Should Sirius have the cash on hand to repurchase these notes at maturity, or should they take a chance to refinance them at that time — not knowing what the debt market may be like in a year.”
It seems to me that the most prudent choice the company should take that would reward stockholders in the long run is to continue to pay down the tower of debt that to me is the principle thing that keeps the PPS from really rising. Hopefully, paying down the debt will lead to credit upgrades that are no longer in “junk” status. That will lead to better and better debt terms that lead to greater profits…jmpo
and do a reverse split finally for the right reasons
I absolutely agree that the only way for siri to move forward regarding its balance sheet is to pay down the existing debt. It is my understanding this is exactly Karmazin’s plan. The only question that lingers is the rate at which they will be able to deleverage. This will certainly be a function of their cash flow and refinancing opportunities. Based on their projections and what is actually going on, they will have paid down about 70% of their debt and refinance the rest by 2014. As to shares buy back, this may be much more complicated than we think due to debt covenants most likely preventing them from buying back shares. If siri is not bought out at very attractive terms for shareholders, the company will most likely institute at some point a share buy back plan through 2020. At the same time, when the company financials are robust enough and the market turned toward them, it might be safe enough to have an r/s. I do not believe that this will happen sooner than 2014. The results in the second half of 2010 and 2011 will be a very credible indicator of what will happen in the following years and how quickly they will fix their balance sheet. Although we have about six to seven months to wait and watch, I am confident that the results will be very encouraging and it will take them at most three years to deleverage and start a buy back.
This VL is more optimistic than me. That’s a first.