Activist ValueAct sees an overlooked opportunity at Liberty Live Group

Enterprise: Liberty Dwell Group is a monitoring inventory that represents Liberty Media Group’s possession stake in Dwell Nation Leisure. Dwell Nation operates as a dwell leisure firm worldwide. It operates via the next segments” Live shows, Ticketing, and Sponsorship & Promoting. The Live shows section promotes dwell music occasions in its owned or operated venues, and in rented third-party venues. The Ticketing section manages the ticketing operations, together with the availability of ticketing software program and providers to shoppers and customers with a market for tickets and occasion data via cellular apps, different web sites, stores and its major web sites: livenation.com and ticketmaster.com. The Sponsorship & Promoting section sells worldwide, nationwide and native sponsorships, in addition to the position of promoting and promotional packages.

Inventory Market Worth: ~$7B ($75.85 per share)

Possession: 5.51%

Common Price: $51.17

Activist Commentary: ValueAct has been a premier company governance investor for over 20 years. ValueAct principals are usually on the boards of half of the agency’s core portfolio positions and have had 56 public firm board seats over 23 years. Moreover, the agency is a long-term, considerate and diligent investor identified for creating worth behind the scenes. ValueAct has beforehand commenced 105 activist campaigns and has a median return of 55.02% versus 21.76% for the Russell 2000.

ValueAct filed a 13D on Feb. 11, reporting a 5.51% place in Liberty Dwell Group (LLYVA).

Liberty Dwell (LLYVA) is a monitoring inventory that represents Liberty Media Group’s 30% possession stake in Dwell Nation (LYV), a worldwide dwell leisure firm. John Malone’s Liberty Media Group has traditionally used monitoring shares as an enormous a part of the corporate’s toolbox to permit traders to have a extra centered publicity to the companies they appreciated with out having to leap via the authorized and tax hoops of a by-product. He used this up to now with the Atlanta Braves and Sirius XM, and he presently makes use of it with Dwell Nation and F1. ValueAct has taken a 5.51% place in Liberty Dwell, however it additionally owns a 0.44% stake in Dwell Nation, bringing the agency’s efficient possession of Dwell Nation to roughly 2%, which might make it a high shareholder. 

There are two traits which are core to ValueAct’s investing philosophy and that permeate lots of its investments: First, the agency likes corporations that it thinks are considerably misunderstood by the market. Second, it is a long-term investor that may tolerate short-term ache. Each of these elements are current right here. As an energetic shareholder of Spotify, ValueAct has seen firsthand how the music business has reworked during the last a number of years. It’s a lot simpler in the present day for a proficient artist to construct a worldwide following via streaming providers and the advertising and marketing energy of social media, however the monetization that follows shouldn’t be as simple. The payouts from streaming providers are comparatively meager and simply get smaller as further artists are added to the platforms. Consequently, dwell performances and touring have grow to be probably the most profitable methods for artists to earn – and Dwell Nation dominates this market. The corporate owns all aspects of this ecosystem, which permits Dwell Nation to handle an artist’s complete tour with none exterior involvement. Aside from non-public peer Anschutz Leisure Group, no firm comes shut in scale, and even Anschutz lacks the total vertical integration of Dwell Nation. Nevertheless, whereas this dominance is actually an asset, it may also be considered as a legal responsibility by some, primarily the U.S. Division of Justice.

In Might 2024, the DOJ sued to interrupt up Dwell Nation and Ticketmaster, sending the inventory down about 8% from $101.40 to $93.48. Whereas this improvement could trigger a variety of traders to run in worry, ValueAct noticed it as a shopping for alternative in an awesome firm that was having a market overreaction. The agency invested in Microsoft throughout considerations over the PC market, in Spotify when individuals thought streaming was dying and in Disney through the writers’ strike, so it’s no shock that the agency noticed a possibility in Dwell Nation at a time of heightened uncertainty. The worst factor that the DOJ might do is pressure the breakup of Dwell Nation and Ticketmaster, a structural treatment that’s hardly ever resorted to by the Justice Division (AT&T’s 1984 breakup being a notable exception). It’s extra possible that Dwell Nation agrees to sure adjustments like amending its venue reserving insurance policies and shortening the size of Ticketmaster contracts to permit for extra competitors to assuage the DOJ. Nevertheless, even when the worst case occurs and the 2 corporations separate, Dwell Nation stockholders would personal two nice companies with sturdy tailwinds and best-in-class market positioning. It could possible even be one other shopping for alternative for traders like ValueAct.

The ultimate piece of hidden or misunderstood worth on the firm is its venue growth. Whereas in main U.S. cities with NBA and NHL groups, there are huge arenas for concert events, in different cities and globally there usually are not practically as many available venues. Trying to handle this hole, Dwell Nation is pursuing these initiatives, efficiently growing the College of Texas at Austin’s new area and dealing on related initiatives world wide. Consequently, the corporate has been dedicating a variety of capex to its venue growth objectives: Capex has elevated by 48% over the previous two years and whole debt has tripled since 2015 and has virtually doubled since 2019. Furthermore, the corporate’s disclosure round this has been considerably opaque including to extra market confusion and uncertainty. Constructing these venues is dear within the quick time period however ought to repay handsomely in the long run, a dynamic that ValueAct is accustomed to. Contemplate that the agency invested in Adobe when it was changing from a product buy to a subscription, sending short-term income down however creating vital long-term worth. Proudly owning these venues will give Dwell Nation extra worth to its shoppers and extra income from venues (versus renting venues). As these venues are constructed and utilized, traders will begin realizing that there will likely be a superb return on the funding.  

Assuming the thesis above is correct, there’s vital worth available by shopping for the monitoring inventory or the frequent shares of Dwell Nation. So, why purchase the monitoring inventory? The reply is as a result of the monitoring inventory trades at a pointy low cost to Dwell Nation, and it might present much more worth above and past the basic undervaluation of the enterprise if this low cost goes away. That may occur if the identical plan had been adopted as with earlier Liberty monitoring shares similar to Sirius. Liberty Media has already introduced plans to spin off Liberty Dwell right into a separate public firm later this yr, which is what it did with Sirius. At the moment, the Liberty Dwell low cost ought to compress just a little however will solely go away completely if merged into Dwell Nation. That’s what finally occurred with Sirius. For a lot of causes, together with the connection between John Malone and Dwell Nation CEO Michael Rapino, we expect the spinoff and subsequent merger will take much less time. ValueAct is the form of investor that’s glad holding for 5 years or extra as worth is being created.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.