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Liberty Media Down on Senior Note Conversion Rate Adjustment

Zacks Equity Research

Yesterday, Liberty Media Corp. (LMCA) announced a major adjustment to the conversion rate of its 1.375% Cash Convertible Senior Notes, due 2023. So far, the company had two categories of outstanding voting shares. Series A (LMCA) offers one vote per share while Series B (:LMCB) offers ten votes per share.

In May 2014, Liberty Media’s board of directors decided to offer a stock dividend of two shares of its non-voting Series C common stock for each share of LMCA and LMCB.

The whole stock restructuring exercise has almost tripled the number of outstanding shares. The new conversion rate increased to 15.7760 shares of LMCA from the initial rate of 5.5882 shares of LMCA per $1,000 principal amount of Cash Convertible Notes. As a result, the stock price of Liberty Media crushed by an enormous $92.37 (65.37%) to $48.94 yesterday.

However, the overall market value of the stock remains the same owing to the issuance of new shares. The newly issued Series C common stock will begin regular trading from today on the Nasdaq Global Select Market under the ticker symbol LMCK.  

Nonvoting classes are generally issued by a company when it is pursuing the acquisition of another company with stocks. In early 2014, Liberty Media was relentlessly focusing on taking the full control over SIRIUS XM Radio Inc. (SIRI), the largest satellite radio broadcaster in the U.S. Meanwhile, management abandoned its plans to acquire full control of the satellite radio broadcaster. Liberty Media currently controls more than 50% stake of SIRIUS XM.

Notably, Liberty Media, which holds a 27.3% stake in Charter Communications Inc. (CHTR), was aggressively pursuing the idea of acquiring Time Warner Cable Inc. However, Charter Communications has lost to Comcast Corp. (CMCSA) in its bid to acquire Time Warner Cable. This disrupted Liberty Media’s plans of gaining significant traction in the U.S. cable industry.

Moreover, Liberty Media has also decided to increase its stake in Live Nation Entertainment Inc. from the existing 27%. Live Nation is the largest concert promoter and ticketing company in the U.S. If successfully completed, the deal will help Liberty Media drive earnings and revenues as Live Nation Entertainment has performed reasonably well in the last couple of years.

Liberty Media currently carries a Zacks Rank #3 (Hold).   

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