Liberty CEO touts growth
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DENVER -- Liberty Media Corp. (LMCA) Chief Executive Robert Bennett said Friday that the company's consolidated equity growth rate over the next five years is expected to be 24%, and that its stock is trading at a 15% to 20% discount to the value of Liberty's assets.
Bennett, speaking at a Liberty investors' meeting in New York, divided the Englewood, Colo., company's portfolio of assets into four groups and projected a five-year equity growth rate and value for each of the groups, based on public stock valuations, analysts' estimates and internal projections.
The "fully developed" assets, or holdings such as Liberty's stake in AOL Time Warner Inc. (AOL), "have a current value of about $15 billion and potential five-year equity returns of around 20% per year," Bennett said at the meeting, which was broadcast on the Internet.
The next category of assets, or "high-growth" assets, include holdings such as programming company Discovery Communications Inc. and movie provider Starz Encore Group LLC. "The high-growth assets have an estimated value of around $20 billion and an equity growth rate, combined, of about 25%," he said.
The "developing assets" include international operations and Liberty's stake in Spanish language TV broadcaster Telemundo Communications Group Inc., and they have a prospect of high equity returns but are not yet free cash-flow positive. "The developing assets currently are valued at around $10 billion, including Germany (where Liberty recently bought cable TV systems), and could have equity returns of 35% to 40%," he said.
The fourth category, "financial" assets, includes such Liberty holdings as its stock in Motorola Inc. (MOT) and Sprint PCS Group (PCS). Those financial assets are not within Liberty's strategic media area, or are assets in which Liberty has a small ownership percentage. Liberty uses those assets to generate cash when it needs it to take advantage of opportunities. "The financial assets, including cash and netting out debt, are worth about $5 billion and have a growth rate of, say, 5%," Bennett said.
Taking all four categories of assets together, "that all translates into a composite growth rate of around 24%," Bennett said. "Given that we can pay off all of our corporate debt tomorrow with our hedge position, and that only a couple of our businesses are highly leveraged, we think that's a very good overall portfolio return."
He added: "That doesn't include anything that we might do to try to improve the overall returns in our hands. That's simply the businesses as they sit."
Bennett stressed four reasons to invest in Liberty. One is its "great assets," which have the potential to yield a high composite return with relatively little financial risk, he said. Another is its strong financial position, he said, including $2.5 billion in cash, with the ability to take advantage of acquisition opportunities.
"In these situations, cash is king and we think there are a number of opportunities for us to acquire additional assets that will add scope and scale to our business at attractive prices," Bennett said.
The track record of the management team provides another reason for investing in Liberty, he said. If someone had invested $100 in the first version of Liberty in 1991 and reinvested it in the second version of the company, that $100 investment would be worth $8,900 today, he said.
Bennett also stressed that the company's shares are trading at a low price. "By any measure, we're trading at a discount to the value of our assets and the valuations of our peers," he said. "Most analysts estimate that we're trading at a 15% to 20% discount to the apparent value of our assets."
On an "attributed" basis, accounting for Liberty's percentage ownership in various businesses, Liberty is trading at about 11 times estimated 2002 cash flow and 14 times 2001 cash flow. That implies that attributed cash flow is expected to grow 30% between 2001 and 2002, he said.
Liberty Media is considering the creation of a new company to hold its international assets with its own tracking stock, said Chief Executive Bennett at the investors' meeting Friday. He said the creation of such a tracking stock is now possible because of the separation of Liberty from AT&T Corp. (T), of which Liberty had been a tracking stock.
The new company might be an efficient way to raise private, strategic equity or standalone debt, Bennett said. With the tracking stock, Liberty would issue "equity to private parties to raise cash or to acquire assets," he said. "Given the current market, we probably wouldn't look to have a public equity any time soon, but that entity might have its own credit rating and it might be a direct issuer of public bonds or of bank debt."
Liberty Chairman John Malone said the Liberty tracking stock would have its own balance sheet and be a "vehicle for raising external strategic capital and doing strategic acquisitions." Malone said the company likely will take its tracking stock plan to shareholders shortly.
Asked about what he sees happening with AT&T Broadband, the cable TV unit of AT&T, Liberty Chairman Malone said he believes the unit could be taken over by Comcast Corp. (CMCSK, CMCSA) or AOL Time Warner Inc. (AOL), or remain independent.
In any of those scenarios, Malone said, Liberty should be in good shape, partly because it has long-term contracts for its Discovery and Starz Encore units.
Comcast has made an offer for AT&T Broadband, and if it ends up buying the unit, Malone said Liberty should be "fine." He noted that Liberty has substantial stakes in QVC Inc. and E! Entertainment Television Inc., which "at some point will probably convert into Comcast equity."
That probably would make Liberty, at least at today's valuation, "far and away the largest shareholder in Comcast," Malone said. Comcast has tax incentives for buying Liberty's interest in those companies with Comcast shares, according to Malone.
"The other mentioned, but not yet public, proponent (of an AT&T Broadband buy) is AOL," Malone said. "As you know, we're the largest single shareholder of AOL."
"Liberty would be very happy" if AOL acquired the broadband unit, Malone said.
Malone also said he sees AOL Time Warner and Microsoft Corp. (MSFT) as potential players in the European cable TV business, but not as competitors with Liberty. "They would rather play through us rather than against us," he said. |
