During his recent interview with Tobias, Francisco Olivera, President of Arevilo Capital Management discussed John Malone And The Art Of Capital Allocation. Here’s an excerpt from the interview:
Tobias: When Bill introduced us, he said, you’ve got to talk to Frank. You’ve got to talk to him about Malone and Liberty. So, what attracted to the Liberty complex and John Malone?
Francisco: I think what attracted to me is that they’re really shareholder minded. They know how to pick businesses that are really strong, capitalize them appropriately, and invest for the long term. So, they touch on a lot of the business pillars, the pillars of investing that we talked about. There are many businesses that I understand and they’re sustainable and can grow, they believe in those businesses. They put the right management teams, they capitalize them accordingly, and they’re very financial engineering-minded, especially Malone though. Those spin-off things that they want to isolate certain businesses or create tracking stocks, which are like synthetic equities really. They’ll try to do M&A when it’s appropriate. They’ll find new businesses to sometimes take public when it’s appropriate.
They backed it during the financial crisis in distress scenarios with Sirius XM, but also when there’s industry consolidation. I think they touch on all those things. I think it’s really attractive to me and how they talk to shareholders, and their vision long term. I’m not saying I don’t necessarily like every single business. When you say Liberty and Malone, the amount of takers that you can write off is a lot. So, I’ll be picking within that universe. Six years ago, Liberty Media had their Sirius XM stake, the Charter stake, Live Nation stake, Atlanta Braves.
And they spun out the Charter sake, isolated in Liberty Broadband, another company. Then, they took Liberty Media and split it in three tracking stocks. One for the Sirius XM asset, one for at the time was only Live Nation and some cash and some smaller investments. And then, they had the Braves, the baseball team as another of the trackers. When they went to isolate the Sirius XM stake, a very liquid public company, large and buying back stock, they wanted to have everything else in Live Nation and also isolate the Braves as a pure play, the baseball team with the real estate assets. What’s interesting after that is that they bought Formula One with the tracking stock that had the Live Nation.
It basically structured as a reverse IPO in a sense. So, a public company buys a private company, but the private company is the one that becomes dominant thereafter. Even after that, during the COVID, they reattributed assets– when the Formula One asset was with Live Nation, both depend on basically having a lot of people to add events, a large amount of people. The average Formula One race has 200,000 people attending and obviously, Live Nation is a global concert promoter.
What they did was they thought those two assets having them together problematic, so they took cash from the Liberty, Sirius asset, sent it over to the Formula One asset, and Formula One sent Live Nation. There was a couple of other things that went down in that reattribution but that’s the most simplistic thing. They also issued rights offering on Liberty Sirius. I think rights offering can be pretty interesting if you’re a long-term shareholder. You’ve got an opportunity to add, and maybe sometimes get oversubscription.
Studying those complexities and those chess moves and what they’re really seeing long term, it’s something that’s actually fun and interesting, not to say that they’re all right and then they’ve been perfect. But if you follow them closely and you follow the businesses and look at closely, I think you can do really well or at minimum learn about how they think about business and growing businesses and capitalizing businesses in M&A. So, I think that’s one of the reasons why I like to follow them. Frankly, the Charter investment is one of the largest, in large part because of them.
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