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 (http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=732276), 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 (http://www.nasdaq.com/symbol/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.

4 comments:

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Unknown said...

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Best Green Investments said...

Liberty Media is a core holding