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Malone’s Liberty Media Leaves Trackers Behind

11/21/2011 12:01 AM Eastern

John Malone’s Liberty Media
is effectively eliminating its tracking-stock
structure, completing a long effort to simplify
the often-complicated configuration
of its myriad content and online businesses.

The move to combine the Liberty Starz
and Liberty Capital trackers comes weeks
after Liberty converted its Liberty Interactive
tracking stock — including
shopping channel QVC
— into an asset-backed security.
Liberty Starz shares (including
the Starz premium
channel) will convert
into 0.88129 shares of Liberty
Capital on Nov. 28, and the
combined entity will be an
asset-backed security.

Liberty
will result in two classes of
stock, trading under “LMCA” and “LMCB.”

Liberty Capital includes minority interests
in several media companies; the Atlanta
Braves Major League Baseball team; a 40% interest
in Sirius XM Radio and a 17% holding in
Barnes & Noble.

CEO Greg Maffei said the aim was “eliminating
the ‘tracker discount,’ increasing liquidity
in the stock and creating a stronger
acquisition currency. In addition, we recently
took advantage of the
attractive debt markets to
raise capital at Starz, and we
have more opportunities to
deploy it at a combined Liberty
Media.”

Malone and Liberty practically
invented tracking stocks
for media companies, securities
that follow a company’s
performance but are not
backed by hard assets.

Their advantage is they can highlight the
value of a unit without having to actually spin
it off . Their disadvantage is shareholders typically
have limited or no voting rights and no
claim on the assets or the business,.

Last week, Liberty Media completed a $3
billion debt deal: a $1.5 billion senior-secured
credit facility with a $1 billion, five-year revolver
and a $500 million term loan.

Starz, which had no debt, is now leveraged
at about three times forward-looking cash flow.

“We thought it was a good time to raise
money,” Maffei explained at Liberty’s annual
Investor Day in New York last Thursday, but
Starz had few opportunities to spend it.

Malone said, from an investor standpoint,
Liberty Starz shareholders were “looking at
essentially a balance sheet with no leverage,
full tax load on the margin, and probably
two-thirds of the capital deployed with no return.
What kind of a return on equity do you
think that is going to project to be long-term?
Perhaps if you think about that you’ll understand
why we put them together.”

September