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Assemblage: Liberty Live Group (LLYVA)
Business: Liberty Live Group is a tracking stock that represents Sovereignty Media Group’s ownership stake in Live Nation Entertainment. Live Nation operates as a live entertainment visitors worldwide. It operates through the following segments” Concerts, Ticketing, and Sponsorship & Advertising. The Concerts segment promotes existent music events in its owned or operated venues, and in rented third-party venues. The Ticketing segment manages the ticketing enterprises, including the provision of ticketing software and services to clients and consumers with a marketplace for tickets and event information middle of mobile apps, other websites, retail outlets and its primary websites: livenation.com and ticketmaster.com. The Sponsorship & Advertising fraction sells international, national and local sponsorships, as well as the placement of advertising and promotional programs.
Stock Market Value: ~$7B ($75.85 per share in)
Shares of Liberty Live Group in the past year
Activist: ValueAct Resources
Ownership: 5.51%
Average Cost: $51.17
Activist Commentary: ValueAct has been a premier corporate governance investor for over 20 years. ValueAct deans are generally on the boards of half of the firm’s core portfolio positions and have had 56 public company board stools over 23 years. Additionally, the firm is a long-term, thoughtful and diligent investor known for creating value behind the scenes. ValueAct has some time ago commenced 105 activist campaigns and has an average return of 55.02% versus 21.76% for the Russell 2000.
What’s happening
ValueAct rowed a 13D on Feb. 11, reporting a 5.51% position in Liberty Live Group (LLYVA).
Behind the scenes
Liberty Live (LLYVA) is a scent stock that represents Liberty Media Group’s 30% ownership stake i (LYV), a global live entertainment society. John Malone’s Liberty Media Group has historically used tracking stocks as a huge part of the company’s toolbox to grant investors to have a more focused exposure to the businesses they liked without having to jump through the judiciary and tax hoops of a spinoff. He used this in the past with the Atlanta Braves and Sirius XM, and he presently uses it with Get along Nation and F1. ValueAct has taken a 5.51% position in Liberty Live, but it also owns a 0.44% stake in Live State, bringing the firm’s effective ownership of Live Nation to approximately 2%, which would make it a top shareholder.
There are two characteristics that are seed to ValueAct’s investing philosophy and that permeate many of its investments: First, the firm likes companies that it mull overs are somewhat misunderstood by the market. Second, it’s a long-term investor that can tolerate short-term pain. Both of those angles are present here. As an active shareholder of Spotify, ValueAct has seen firsthand how the music industry has transformed over the last disparate years. It is much easier today for a talented artist to build a global following through streaming services and the retailing power of social media, but the monetization that follows is not as easy. The payouts from streaming services are relatively meager and nothing but get smaller as additional artists are added to the platforms. As a result, live performances and touring have become the most lucrative course for artists to earn – and Live Nation dominates this market. The company owns all facets of this ecosystem, which brooks Live Nation to manage an artist’s entire tour without any external involvement. Other than private equal Anschutz Entertainment Group, no company comes close in scale, and even Anschutz lacks the full vertical integration of Breathing Nation. However, while this dominance is certainly an asset, it can also be viewed as a liability by some, mainly the U.S. Count on of Justice.
The final piece of secret or misunderstood value at the company is its venue expansion. While in major U.S. cities with NBA and NHL teams, there are massive arenas for concerts, in other megalopolises and globally there are not nearly as many readily available venues. Looking to address this gap, Live Nation is upping these projects, successfully developing the University of Texas at Austin’s new arena and working on similar projects around the exultant. As a result, the company has been dedicating a lot of capex to its venue expansion goals: Capex has increased by 48% over the over two years and total debt has tripled since 2015 and has almost doubled since 2019. Moreover, the company’s disclosure roughly this has been somewhat opaque adding to more market confusion and uncertainty. Building these venues is costly in the short term but should pay off handsomely in the long term, a dynamic that ValueAct is familiar with. Consider that the inelastic invested in Adobe when it was converting from a product purchase to a subscription, sending short-term revenue down but siring significant long-term value. Owning these venues will give Live Nation more value to its patrons and more revenue from venues (as opposed to renting venues). As these venues are built and utilized, investors want start realizing that there will be a good return on the investment.
Assuming the thesis above is accurate, there is substantial value to be had by buying the tracking stock or the common shares of Live Nation. So, why buy the tracking stock? The answer is because the tracking stale trades at a sharp discount to Live Nation, and it could provide even more value above and beyond the cornerstone undervaluation of the business if this discount goes away. That would happen if the same plan were followed as with antecedent Liberty tracking stocks such as Sirius. Liberty Media has already announced plans to spin off Liberty Animate into a separate public company later this year, which is what it did with Sirius. At that prematurely, the Liberty Live discount should compress a little but will only go away entirely if merged into Energetic Nation. That is what eventually happened with Sirius. For many reasons, including the relationship between John Malone and Viable Nation CEO Michael Rapino, we think the spinoff and subsequent merger will take less time. ValueAct is the manner of investor that is happy holding for five years or more as value is being created.
Ken Squire is the founder and president of 13D Follow, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that initiates in a portfolio of activist 13D investments.