How long before John Malone and Greg Maffei run out of tickers?
The masters of financial engineering at the various Liberty businesses said Thursday they're expanding their alphabet soup of an empire through two spinoffs and the creation of three tracking stocks. These moves will spur 10 new ticker symbols, spread across multiple share classes.
Why do this? Malone's group likes to liberate (ahem) units and set them up on their own in hopes of attaining richer valuations, while keeping large stakes in the businesses. The dealmaker isn't alone in wanting to capitalize on investors' penchant for simpler corporate structures without tax penalties. Many companies have split themselves up and, in fact, tax-free spinoffs were occurring at a record pace last year and into early this year. Michael Dell is even employing the tracking stock mechanism for VMware, after his eponymous company acquires VMware's parent, EMC.
What's funny about Malone's quest for simplicity, though, is it's also creating an increasingly elaborate and confusing structure. Leave it to a billionaire to decide more is more.
So let's try to untangle this ever-larger knot. To start, Liberty Media is spawning three tracking stocks -- one for the Atlanta Braves baseball team, another for its controlling stake in Sirius XM satellite-radio and a third for the rest of Liberty Media's holdings, which include interests in ticket vendor Live Nation Entertainment and minority investments in media content giants Time Warner and Viacom.
Liberty Interactive, which exploits your retired grandmother's shopping pastime through its QVC station, is spinning out two divisions. One will house its CommerceHub software, which is used by retailers. The other will be Expedia Holdings, comprising Liberty's stake in the Expedia online travel services company and the BodyBuilding.com subsidiary.
The Expedia spinoff stands out as arguably the most interesting aspect because Expedia has been on a takeover binge. Just last week, it announced plans to buy HomeAway, a vacation-rental business, for about $3 billion. That's after completing the $1.5 billion purchase of Orbitz two months ago and buying Travelocity earlier in the year. (Figures include net debt.) It's also done smaller deals with foreign travel sites Trivago, Wotif and Decolar.
"Cleaner" capital structures "may allow for more efficient capital raising for acquisitions, dividends and distributions," said Bloomberg Intelligence analyst Paul Sweeney.
In which case, Expedia is probably one to keep an eye on. With a roughly $17 billion market value, Expedia is still a fraction of the size of Priceline, its $66 billion rival. It also trades at a discount to Priceline, relative to Ebitda and revenue. Another industry player is TripAdvisor, which Expedia spun off several years ago and is now valued at $11 billion.
TripAdvisor itself is a microcosm of the complexity of a Malone-controlled company. See if you can keep track: Malone did a swap with business partner Maffei that effectively gave Maffei control of TripAdvisor through its Liberty TripAdvisor holding company, which was spun off last year from Liberty Interactive to shareholders of the Liberty Ventures tracking stock. There's even been speculation that Priceline -- or even Expedia -- could seek to get control of TripAdvisor via the Liberty holding company.
A Braves tracking stock is also timely given that many sports franchises are having their values assessed through various deals. The Dolan family split their Madison Square Garden Co. into two pieces -- one carrying the New York Knicks, New York Rangers and the arena they play in, and the other housing its regional sports networks. Shares of the piece tied to the team are down since the split, but analysts forecast a more than 10 percent gain on average over the next 12 months.
Any press release from Malone and Maffei that contains the words "spinoff" or "tracking stock" takes a lot to unpack and is bound to make investors cross-eyed. The test will be whether these moves do uncover value or just make it tougher to figure out who owns what where.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Tara Lachapelle in New York at email@example.com
To contact the editor responsible for this story:
Beth Williams at firstname.lastname@example.org