TOP CONTRIBUTORS

Catherine Shyu

LCAPA AT A GLANCE

P/E ► -3.08   EV/EBITDA ► -10.9   ROA ► -4% AVG ROE ► -39.2% AVG Debt to Equity ► 9.37 AVG Current Ratio ► 1.37 AVG Interest Coverage Ratio ► -4.61 LOW

 

 

 

 

 

 

Liberty Capital (NASDAQ : LCAPA) is one of three tracking stock groups belonging to the Liberty Media Corporation. Liberty Media is a holding company that invests mainly in the video and online commerce, media, communications and entertainment industries.^[1] LCAPA represents the holdings that are in the video programming and communications technology, and services involving cable, satellite, and the Internet.^[2] Its major holdings include Starz Media, the Atlanta National League Baseball Club, Inc. (ANLBC), TruePosition, and its stakes in Time Warner and Sprint Nextel.^[3] Throughout 2007, LCAPA's share value increased 18.9%, compared to the S&P 500, which increased 5.5%.^[4]

Since 2006, Liberty Media has been trying to change from a pure holding company to one focused more on operations by converting some of its non-strategic investments (i.e. its holdings that are non-controlling, such as its stake in News Corp) into fully-owned operating assets and cash.^[5] It has taken steps towards this goal by trading its less strategic assets for full ownership of companies such as Starz Media, FUN Technologies, the Atlanta Braves, and Leisure Arts, Inc.^[6] Its deal with News Corp. ending in 2008 resulted in Liberty Media acquiring a 48% stake in News Corp's DirecTV.^[7] Its success in doing so led to its decision in March 2008 to reclassify Liberty Capital and issue a new tracking stock, Liberty Entertainment.^[8]

Business and Financials

Liberty Capital has controlling interests in its subsidiaries (Starz Media, LLC, Atlanta National League Baseball Club, Inc., and TruePosition, Inc.) and holdings in Time Warner Inc. and Sprint Nextel Corporation.^[9] As of March 2008, Liberty Capital's primary assets were $6 billion worth of stakes in Time Warner (TWX), Sprint Nextel (S), Motorola (MOT) and Viacom (VIA). Its smaller operating assets included the Atlanta Braves, which are valued at $450M, Starz Media at $400M, and TruePosition at $300M.^[10] Business activity is funded by cash on hand, revenue provided by operating assets, tax payments by the Interactive Group and dispositions of non-strategic assets. At the end of 2007, Liberty Capital had $2,578 million in cash and $4,979 million in non-strategic securities.^[11]

In 2007, Liberty Media Corporation reallocated its holdings and created a new tracking stock called Liberty Entertainment, which would focus on television and internet distribution and programming. This was part of its plan to transition into an operating company from a holding one. Liberty Media's action to split Liberty Capital's stock into two has been successful in focusing Liberty Media's assets. The deal was completed in March 2008, and was done to allow investors the chance to invest in a specific industry.^[12] Its shares of The DirecTV Group (DTV), FUN Technologies Inc. and Starz Entertainment, LLC have been moved to the Liberty Entertainment tracking stock. Liberty Capital still retains ownership of the Atlanta Braves, Starz Media, LLC, TruePosition, Inc, and shares in Motorola, Sprint Nextel, and Time Warner.^[13]

In February 2008, Liberty Capital exchanged 16% of its holdings in News Corporation for a subsidiary of News Corp, which holds a 41% stake in The DirecTV Group, Inc.^[14] DirecTV brings in cash flow mainly from the Eastern region of the US, and consistently ranks at the top of customer service satisfaction surveys.^[15] In April 2008, Liberty Capital bought 78.3 Million shares of DIRECTV, increasing its ownership of the company to 48%.^[16]

In May 2007, Liberty Media bought the Atlanta Braves Baseball Club from Time Warner, Inc. for 68.5 million shares of Time Warner's stock.^[17] This was another step towards becoming an operating company, as Liberty Media was trying to focus and streamline its numerous assets.^[18] The acquired assets from this transaction were attributed to the Liberty Capital group, and Liberty Media owns 100% of the ANLBC. ^[19]

In February 2007, Liberty Capital exchanged its shares in CBS for ownership of a company that holds the CBS affiliate in Green Bay and $170 million in cash, converting a LCAPA holding into operating business.^[20]

This graph shows the performance of Liberty from 2005-2007, pre and post- restructuring, compared to its peers (News Corp, CBS, The Walt Disney Company and Time Warner, Inc).^[21]

Major companies attributed to the Liberty Capital Group

Starz Media, LLC

Starz Media creates and distributes animated and live-action television programming, and is also a lead distributor of home videos and DVDs. It incurred losses from starting up Overture Films, and expects losses to continue from investing money into building up a library of products to distribute.^[22] Starz Media is divided into the following brands: Anchor Bay Entertainment, Overture Films, Proprietary Productions, Film Roman, Toronto Animation Studio and Feature Animation. Anchor Bay Entertainment primarily distributes home videos and DVDs through national retailers, such as Wal-Mart, Target and Best Buy.^[23] Overture Films produces motion pictures that are sold on home video by Anchor Bay. Overture earns its revenue from its film releases, and Anchor Bay earns revenue from sales of Overture's films and from sales of its own home videos. Starz Media has connections to all the aspects of film production and distribution: theatrical releases, television, home video, broadcast syndication and Internet.^[24]

Atlanta National League Baseball Club, Inc.

The Atlanta National League Baseball Club, Inc. is a wholly owned subsidiary of Liberty Media, and includes the Atlanta Braves, which are one of the most successful Major League baseball clubs from the past 17 years.^[25] ANLBC earns its revenue from ticket sales and concession sales on game days at Turner Field, which is the home stadium of the Atlanta Braves.^[26] The ANLBC earned $159 million in revenues for the year 2007. ^[27]

TruePosition, Inc.

TruePosition develops and markets technology that locates wireless phones and other wireless devices. In 2002, AT&T began using TruePosition's technology and T-Mobile USA implemented it in 2003. As of December 2007, four smaller wireless carriers have implemented TruePosition's technology.^[28] TruePosition earns its revenue from the sale of hardware and licensing of its software used to locate wireless devices.^[29]

FUN Technologies, Inc.

FUN provides online fantasy sports games and sports information. The Games division and the Fantasy Sports division generate their revenue from fees collected from online tournament participants, advertisers, and the designing of sports games for third parties.^[30] FUN's Sports Information division provides real-time sports information, and makes its money from its subscription services.^[31]

Revenue Generated by the companies under the holdings of Liberty Capital (in millions of dollars) from 2005-2007:^[32]

2007 total revenue of holdings under Liberty Capital (LCAPA):^[33]

Key Trends and Forces

Many of Liberty Capital's Assets are Publicly Traded and Cannot be Controlled by Liberty Capital

Liberty Capital has a large public equity ownership in other companies, so the value of its tracking stock follows that of its subsidiaries and other companies in which it holds shares.^[34] The value of its stock depends on the success of its subsidiaries, of which the largest was Starz Entertainment, which was moved to the Liberty Entertainment tracking stock.^[35] Since 2006, Liberty Capital has been selling those of its investments that are not controlling or bringing in significant revenue, instead opting to buy full ownership of companies, such as Starz Media, the ANLBC, etc., which lessens this effect.

Liberty Media's Goal to Make Itself Into a Operating Company May Run Into Difficulties

Liberty Media is currently trying to change from a holding company to an operating company by aiming towards attaining full ownership of smaller companies and liquidating some of its less strategic holdings, such as trading a non-controlling 16.3% share of News Corp for a 48% ownership stake in DirecTV.^[36] Liberty Media has historically been a holding company, but from 2007 it has been selling some of its assets for cash. It made a deal with News Corporation (NWS) for 39% control over DirecTV. In April it bought an additional 78.3 million DirecTV shares, increasing its ownership stake to 48%.^[37]

A main strategy of running a holding company is so that Liberty Media can organize its diverse business units into separate tracking stock groups. Liberty Capital has problems it must address while becoming an operating company, such as having to control the operations of all its holdings, setting business strategies for each, etc., which is more effort-intensive.

Rapid Technological Changes Affect TruePosition's Technological Standing

Liberty Capital's holdings are subject to the advancement of the technology used, especially for TruePosition, which locates wireless devices. At the moment AT&T (T) and T-Mobile are using TruePosition's technology, but if another company developed a better technology, TruePosition would suffer.^[38] Liberty Media also depends on the sales of its home videos for its revenue, and the physical format (video cassette, DVD) affects revenue.

Performance of Atlanta Braves Affects Revenue Earned By ANLBC

Liberty Capital has a 100% ownership of the Atlanta National League Baseball Club, Inc., which owns the Atlanta Braves and leases their home field, Turner Field. ANLBC earns its revenue from the sale of tickets and concessions at Turner Field. The amount of revenue it earns depends on the success of the Atlanta Braves, which for the past 17 years have won 14 divisional titles, five National League pennants and one World Series.^[39]

Competition

Liberty Capital's businesses in the video and online commerce industry compete with other online and offline retailers. The principal competitive factors in the market are brand recognition, the quality of the products, price, customer satisfaction, etc.^[40]

In the television programming industry, Starz Media has to compete with other television programmers for airtime on a limited number of channels.^[41] It also faces competition from other home video distributors. Starz Media's animated films compete with those of better known names, such as Disney, Pixar, Dreamworks, and Twentieth Century Fox.^[42]

The Anchor Bay Japanese animation home video distribution company has to compete with several other home video/DVD distribution companies such as VIZ Entertainment, GoodTimes Entertainment, Lyrick Studios and Sony Wonder.^[43]

TruePosition competes with @Road, QUALCOMM, Remote Dynamics, Teletrac, and Xata . Its biggest competitors are @Road, QUALCOMM and Teletrac, all of which develop tracking technology as well, although Teletrac and @Road have slightly different systems that locate trucks and autos.^[44]

References

1. ↑ LCAPA 2007 10-K, Item 1: Business, Page 1
2. ↑ Morningstar Analysis: LCAPA: Liberty Capital Analyst Report
3. ↑ LCAPA 2008 10-Q, Page 9
4. ↑ Liberty Media Corporation Annual Report, 2007
5. ↑ Morningstar Analysis: LCAPA: Liberty Capital Analyst Report
6. ↑ Liberty Media Corporation Annual Report, 2007
7. ↑ Morningstar Analysis: LCAPA: Liberty Capital Analyst Report
8. ↑ Liberty Media Corporation Annual Report, 2007
9. ↑ Liberty Media Corporation
10. ↑ LCAPA: Adjusting For LMDIA Spin; Patience Required
11. ↑ Liberty Media Corporation Annual Report (2007), Page 18
12. ↑ Liberty Media Corporation Annual Report (2007), Page 4
13. ↑ Liberty Media Corporation Annual Report (2007), Page 11-13
14. ↑ LCAPA 2007 10-K Item 1: Business, Page 2
15. ↑ 5/15/07 DIRECTV Tops Cable in Customer Satisfaction for 7th Year in a Row
16. ↑ Liberty Media Purchases Additional 78.3 Million DIRECTV Shares
17. ↑ Liberty Media Acquires Atlanta Braves Baseball Club
18. ↑ 05/17/07 Liberty Media Acquires Atlanta Braves Baseball Club
19. ↑ Liberty Media Acquires Atlanta Braves Baseball Club
20. ↑ Liberty Media Corporation Annual Report (2007), Page 5
21. ↑ Liberty Media Corporation Annual Report (2007), Page 8
22. ↑ Liberty Media Corporation Annual Report, 2007
23. ↑ LCAPA 2007 10-K Item 1: Business, Page 7
24. ↑ LCAPA 2007 10-K, Item 1: Business, Page 9
25. ↑ LCAPA 2007 10-K Item 1: Business, Page 9
26. ↑ LCAPA 2007 10-K Item 1: Business, Page 9
27. ↑ Liberty Media Corporation Annual Report, 2007
28. ↑ LCAPA 2007 10-K Item 1: Business, Page 10
29. ↑ LCAPA 2007 10-K Item 1: Business, Page 10
30. ↑ LCAPA 2007 10-K Item 1: Business, Page 11
31. ↑ LCAPA 2007 10-K Item 1: Business, Page 11
32. ↑ LCAPA 2007 10-K, Item 5: Consolidated Operating Results, Page 9
33. ↑ LCAPA 2007 10-K, Item 5: Consolidated Operating Results, Page 9
34. ↑ LCAPA 2007 10-K, Item 1A: Risk Factors, Page 28
35. ↑ Morningstar Analysis: LCAPA: Liberty Capital Analyst Report
36. ↑ Morningstar Analysis: LCAPA: Liberty Capital Analyst Report
37. ↑ 04/03/08 Liberty Media Purchases Additional 78.3 Million DIRECTV Shares
38. ↑ LCAPA 2007 10-K, Item 1C: Narrative Description of Business, Page 10
39. ↑ LCAPA 2007 10-K, Item 1: Business, Page 9
40. ↑ LCAPA 2007 10-K, Item 1C: Narrative Description of Business, Page 26
41. ↑ LCAPA 2007 10-K, Item 1C: Narrative Description of Business, Page 26
42. ↑ LCAPA 2007 10-K, Item 1C: Narrative Description of Business, Page 26
43. ↑ LCAPA 2007 10-K, Item 1C: Narrative Description of Business, Page 26
44. ↑ TruePosition, Inc.