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Company: Liberty Live Group (LLYVA)
Business: Liberty Live Group is a tracking stock that represents Liberty Media Group’s ownership stake in Live Nation Entertainment. Live Nation operates as a live entertainment company worldwide. It operates through the following segments” Concerts, Ticketing, and Sponsorship & Advertising. The Concerts segment promotes live music events in its owned or operated venues, and in rented third-party venues. The Ticketing segment manages the ticketing operations, including the provision of ticketing software and services to clients and consumers with a marketplace for tickets and event information through mobile apps, other websites, retail outlets and its primary websites: livenation.com and ticketmaster.com. The Sponsorship & Advertising segment sells international, national and local sponsorships, as well as the placement of advertising and promotional programs.
Stock Market Value: ~$7B ($75.85 per share)
Shares of Liberty Live Group in the past year
Activist: ValueAct Capital
Ownership: 5.51%
Average Cost: $51.17
Activist Commentary: ValueAct has been a premier corporate governance investor for over 20 years. ValueAct principals are generally on the boards of half of the firm’s core portfolio positions and have had 56 public company board seats over 23 years. Additionally, the firm is a long-term, thoughtful and diligent investor known for creating value behind the scenes. ValueAct has previously commenced 105 activist campaigns and has an average return of 55.02% versus 21.76% for the Russell 2000.
What’s happening
ValueAct filed a 13D on Feb. 11, reporting a 5.51% position in Liberty Live Group (LLYVA).
Behind the scenes
Liberty Live (LLYVA) is a tracking stock that represents Liberty Media Group’s 30% ownership stake in Live Nation (LYV), a global live entertainment company. John Malone’s Liberty Media Group has historically used tracking stocks as a huge part of the company’s toolbox to allow investors to have a more focused exposure to the businesses they liked without having to jump through the legal 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 Live Nation and F1. ValueAct has taken a 5.51% position in Liberty Live, but it also owns a 0.44% stake in Live Nation, 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 core to ValueAct’s investing philosophy and that permeate many of its investments: First, the firm likes companies that it thinks are somewhat misunderstood by the market. Second, it’s a long-term investor that can tolerate short-term pain. Both of those aspects are present here. As an active shareholder of Spotify, ValueAct has seen firsthand how the music industry has transformed over the last several years. It is much easier today for a talented artist to build a global following through streaming services and the marketing power of social media, but the monetization that follows is not as easy. The payouts from streaming services are relatively meager and just get smaller as additional artists are added to the platforms. As a result, live performances and touring have become the most lucrative ways for artists to earn – and Live Nation dominates this market. The company owns all facets of this ecosystem, which allows Live Nation to manage an artist’s entire tour without any external involvement. Other than private peer Anschutz Entertainment Group, no company comes close in scale, and even Anschutz lacks the full vertical integration of Live Nation. However, while this dominance is certainly an asset, it can also be viewed as a liability by some, mainly the U.S. Department of Justice.
In May 2024, the DOJ sued to break up Live Nation and Ticketmaster, sending the stock down about 8% from $101.40 to $93.48. While this development may cause a lot of investors to run in fear, ValueAct saw it as a buying opportunity in a great company that was having a market overreaction. The firm invested in Microsoft during concerns over the PC market, in Spotify when people thought streaming was dying and in Disney during the writers’ strike, so it is no surprise that the firm saw an opportunity in Live Nation at a time of heightened uncertainty. The worst thing that the DOJ could do is force the breakup of Live Nation and Ticketmaster, a structural remedy that is rarely resorted to by the Justice Department (AT&T’s 1984 breakup being a notable exception). It is more likely that Live Nation agrees to certain changes like amending its venue booking policies and shortening the length of Ticketmaster contracts to allow for more competition to assuage the DOJ. However, even if the worst case happens and the two companies separate, Live Nation stockholders would own two great businesses with strong tailwinds and best-in-class market positioning. It would likely even be another buying opportunity for investors like ValueAct.
The final piece of hidden 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 cities and globally there are not nearly as many readily available venues. Looking to address this gap, Live Nation is pursuing these projects, successfully developing the University of Texas at Austin’s new arena and working on similar projects around the world. As a result, the company has been dedicating a lot of capex to its venue expansion goals: Capex has increased by 48% over the past two years and total debt has tripled since 2015 and has almost doubled since 2019. Moreover, the company’s disclosure around this has been somewhat opaque adding to more market confusion and uncertainty. Building these venues is expensive in the short term but should pay off handsomely in the long term, a dynamic that ValueAct is familiar with. Consider that the firm invested in Adobe when it was converting from a product purchase to a subscription, sending short-term revenue down but creating significant long-term value. Owning these venues will give Live Nation more value to its clients and more revenue from venues (as opposed to renting venues). As these venues are built and utilized, investors will start realizing that there will be a good return on the investment.
Assuming the thesis above is accurate, there is significant 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 stock trades at a sharp discount to Live Nation, and it could provide even more value above and beyond the fundamental undervaluation of the business if this discount goes away. That would happen if the same plan were followed as with previous Liberty tracking stocks such as Sirius. Liberty Media has already announced plans to spin off Liberty Live into a separate public company later this year, which is what it did with Sirius. At that time, the Liberty Live discount should compress a little but will only go away entirely if merged into Live Nation. That is what eventually happened with Sirius. For many reasons, including the relationship between John Malone and Live Nation CEO Michael Rapino, we think the spinoff and subsequent merger will take less time. ValueAct is the kind 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 Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
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