Liberty Media Corp. (LINTA) plans to spin off its interactive and entertainment assets.
Liberty expects to split off its entertainment assets Liberty Capital and Liberty Starz into a new company ‘Newco’ to provide greater transparency into the company’s operations. The spin-off is expected to close in late 2010 or early 2011. The spin-off will likely lead to resourceful cash generation, enabling the company to pursue its acquisition strategies using stock, and will be tax-free to stockholders.
After the spin-off, Newco and Liberty interactive will operate as separate public companies.
Liberty Starz has a stake in the movie channel Starz Entertainment and Liberty Capital has a stake in the Atlanta National League Baseball Club Inc. with interests in Sirius XM Radio Inc. (SIRI) and minority equity stakes in Time Warner Inc. (TWX), Time Warner Cable Inc. (TWC) and Live Nation Entertainment Inc. The interactive asset, Liberty Interactive has a stake in QVC, Expedia, Bodybuilding.com and others.
All of the outstanding debt securities will remain with Liberty Interactive Group. To date, the total debt is $7.4 billion. In the first quarter of 2010, Liberty Interactive Group’s revenues jumped 11% year over year to $2 billion, attributable to favorable results at QVC. Liberty Starz Group’s revenues spiked 3% year over year to $307 million, driven by results at Starz Entertainment. Liberty Capital Group’s revenues shot up 33% year over year to $166 million due to an increase in theatrical revenues and home video revenues at Starz Media.
Liberty is increasingly opting for innovative ways to strengthen its market position. In 2009, Liberty invested up to $530 million in senior debt of SIRIUS XM, which was headed for bankruptcy and received preferred stock convertible into 40% of the common equity. This investment was repaid within six months and the 40% equity stake was worth $3.1 billion. Liberty’s decision to merge a majority of the assets of Liberty Entertainment with DIRECTV (DTV) is another critical move to boost its market position.
We believe Liberty will benefit from higher-margin Internet sales, significant overseas revenue expansion, penetration of the higher-end designer market and the potential resumption of the company’s stock repurchase program in the long term. Liberty faces stiff competition from Amazon.com Inc. (AMZN) and ValueVision Media Inc. (VVTV). We currently maintain our Neutral recommendation on Liberty. It currently has a Zacks #3 Rank (‘Hold’).
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