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Liberty Media Corporation Message Board

  • ezalldee ezalldee Apr 12, 2013 8:29 AM Flag

    Great read on how Malone creates wealth for shareholders. Enjoy

    A perfect example of the power of operating leverage is Sirius Satellite Radio ($SIRI). After their merger with $XMSR in 2008 their stock took a beating. This wasn’t so surprising. The company invested billions of dollars in launching satellites, hiring and developing exclusive content etc. that during the “great recession”, with the prospects of subscriber growth dwindling, the company felt the pain of all those fixed costs.

    In came John Malone (via Liberty Media ($LMCA)) with what has to be one of the best investments of all time. $SIRI had $3.25B in debt, with almost $200M of that due on 2/17/09. A few days prior to the 17th, literally on the verge of bankruptcy, Liberty loaned the company $550M in exchange for shares convertible into 40% of the common stock. Within the year, $SIRI was able to refinance and repay the loan.

    As the economy & revenues started to rebound, some serious operating leverage kicked in. With so few variable costs, almost all of the company’s new revenues from new subscribers and new advertising flowed straight down to the bottom line.

    The company went from an adjusted EBITDA loss of $136M in 2008, and a low of $0.05 per share – that’s five cents – on 2/11/09, to an adjusted EBITDA gain of $920M in 2012. At a current $3.13 the stock is up a staggering 62x!

    Malone bought more over time and now controls over 50% of the corporation. His original 40% – which had a theoretical negative cost (because the debt was paid back with interest) is worth an astonishing $8.2 Billion!

    Now that’s some nice leverage!

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