Adding a Major League Baseball team to its portfolio will create value for Liberty Media shareholders, as the company sells off stock for assets to make it more attractive to Wall Street.
Douglas County-based Liberty Media has reportedly reached a deal to swap most of its 4 percent stake – or 60 million shares – of Time Warner Inc. for the Atlanta Braves, a group of magazines, and $1 billion in cash.
The swap would provide tax advantages to both companies. Liberty will have to hold on to the Braves for two years to keep that transaction virtually tax free.
The companies valued the Braves at $460 million, nearly 14 percent more than the $405 million Forbes magazine valued the team in 2005. Between 2004 and 2005 the value of the Braves increased 6 percent, according to Forbes.
It is difficult to determine what the value of the Braves would be in two years, said Dave Smrek, principal for Adrenalin Inc., a Denver-based sports marketing company.
“There was a period where franchises’ increase in valuation were a foregone conclusion,” he said. “There’s been a little holding back, but there’s still going to be some increases.”
So from Liberty’s perspective, adding the Braves to its Liberty Capital arm and subsequent tracking stock helps ease investor frustration about tax liabilities on the company’s balance sheet, said April Horace, an equity research analyst for Janco Partners in Denver.
She said Liberty Capital’s stock is trading at a discount, and if liquidated, would be worth at least 10 percent more than the $14.6 billion that it’s valued at now.
“Ultimately, the goal is to increase shareholder value and close the gap associated with the discount,” Horace said. “The real crux of the transaction is that they’ve been able to take investments and convert them into an operating asset and cash on a tax-efficient basis.”
The $1 billion in cash would also help pay down the taxes on the company’s balance sheet, she said.
Shares of Liberty Capital closed up $2.75 at $106.74.
Staff writer Kimberly S. Johnson can be reached at 303-954-1088 or kjohnson@denverpost.com.
