Friday, January 11, 2013

Mispriced Liberty Media??

Here's another idea which may or may not works.

Liberty Media is due to spin off its non-Starz related assets, i.e., its media investment assets in Sirius XM, Live Nation, Barnes & Noble, minority interest in Time Warner, Viacom, Sprint, etc.

According to this press release (, persons acquiring Liberty Media common stock in the market through Jan 11, 2013 will receive shares of Spinco common stock in the distribution. So people who buys LMCA at $122 today will still qualify for shares in the Spinco.

And the Spinco stock is now traded on as "when-issued" basis on Nasdaq under the stock code, LMCAV ( "When-issued" refers to the stock price as if the stock is selling on the day it is ex-dividend or ex-distribution or rights. It closed at $108.71 yesterday.

So if you buy LMCA at $122, and on Jan 14, 2013 (coming Monday) when it is ex-distribution and if the actual price then really tracks the "when-issued" price of $108.71, you are actually paying $13.29 per share of Starz stock.

Upon completion of spin-off, there'll be about 124 million outstanding common stock in Starz. Starz makes $240 million in 2011. Thus, eps is $1.93. At the price $13.29, it priced at 6.88x earnings - a value too low compared to other cable companies like AMC Network (>17x) or Discovery Communications (>20x). Even if we use a conservative valuation at 12x eps, it is worth at least $25.

So by paying $122 today for LMCA, you get 1 share of Starz on coming Monday. If you can then sell the non-starz stock on Monday at the same price as the "when-issued" price traded last night at $108.71, you are only paying $13.71 for each Starz shares which produces earnings of $1.94 per share.

Easily, you can almost double up your capital of $13.71 to $25 based on 12x earnings of Starz.

Disclosure: I bought some LMCA at $120.7.



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Unknown said...

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Best Green Investments said...

Liberty Media is a core holding