While John Malone was well known to serious value investors well before, William Thorndike’s book Outsiders really served to popularize the highly successful CEO of the Liberty entities. Malone is a very colorful and a very shrewd businessman, referred to variously as ‘the cable cowboy’, ‘swamp alligator’, and ‘Darth Vader’ by supporters (even investment groupies) and detractors. Joel Greenblatt’s popular book on event driven investing also did much to raise Malone’s profile among investors not involved in the media space.
John Malone’s track record of value creation is equivalent to that of Warren Buffett if all of his entities are considered. However, unlike Buffett, his companies have gone through many transformations (spins, tracking stocks, etc.) which makes it difficult to do an easy comparison to Buffett who has only had one entity. However, Barron’s recently (Liberty Media: Better Than Berkshire) did this comparison though I think they considered a very short period of time (one decade) whereas John Malone started out in the early 70s. In that earlier part he ran TCI from 1973 through 1999, compounding the value of the stock at 30.3% v/s 14.3% for the S&P 500. Since that time he has run the various Liberty entities with similar success over the S&P 500.
The whole history of John Malone and, more importantly, his transactions will undoubtedly be longer than a Ron Chernow business biography. Also, most of the content of such an account will already be well known many value investors. Suffice it to say that, over the years, experience has shown that:
- Malone engineers value creating but incredibly complicated transactions
- It’s fun to guess what Malone will do next but impossible to be consistently right
- More often than not, it’s financially rewarding to be on the same side of a transaction as John Malone.
I have followed most of the Liberty entities for the last many years and hope to do articles on them as time allows and opportunities present themselves. However, truth be told, simply buying when Malone buys would have been as good a strategy as spending weeks and weeks studying companies. Of course, it’s necessary to know and understand the ins and outs of the companies one invests in. But my point is that everything that is said about signals of insider purchases is doubly true in case of one of the best capital allocators in the corporate world.
Many are aware of Malone’s long-standing record of value creation. Here again the history is too long, but successes include, among others, Charter Communications, Inc. (CHTR), Sirius XM Holdings Inc. (SIRI), DirecTV (now owned by AT&T), Discovery, and the Liberty entities (Liberty Global, Liberty Sirius, Formula One Group, Liberty Broadband, LiLAC (LILAK) (LILA), QVC Group, Liberty Ventures, Liberty Expedia).
Generally it’s possible to glean where the Liberty management sees value by assessing which of their own entities have the most aggressive share repurchase programs. The Liberty companies have a history of swallowing themselves to rapidly decrease share count. Occasionally, they will also suspend buybacks or even issue a lot of stock, which are also signals not to be missed.
However, perhaps the strongest endorsement of any particular Liberty entity is a personal account purchase by John Malone himself. In the entire history of currently available SEC filings, this has occurred 11 times. Except for minor purchases of Ascent Capital/Ascent Media, all of his purchases for his personal account have been home runs, which makes them at least worth noting. So what has John Malone bought lately?
Most recently, in July, Malone purchased $37.4 million of shares in LiLAC (classes A & C), the tracking stock that tracks the performance of Latin America and Caribbean markets within Liberty Global. The stock has suffered as the company has stumbled in its acquisition/integration of Cable and Wireless’ Caribbean assets. Further, Puerto Rico has had continuing trouble with its economy. After reporting disappointing numbers late last year, the stock fell from $20, where the several officers and directors (including the CEO) made purchases. Then, in July of 2017, John Malone made the above mentioned purchase.
Does this alone make LiLAC worth buying? Probably not solely for that reason. But it certainly makes it worth studying. It currently trades around 7-8x EV/EBITDA depending on one’s view of the synergies from CWC. This is a level of valuation where management has bought other companies in the region over time. Further, given the fall in the stock price, LiLAC has aggressively repurchased its stock in the last year on an accelerated basis. A hard-spin of the LiLAC tracking stock is set to follow by the end of 2017. Certainly, the company has had its fair share of troubles. But Liberty Global management has had a good operating history and is a good bet to turn things around. Further, John Malone has a great capital allocation history. It’s quite a statement for both of them to be purchasing stock in the open market despite much of their net worth being already invested in the Liberty entities already.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.