In a Dec. 20 research note to investors, Ratcliffe maintained his neutral rating on Liberty Media Capital as well as Liberty Media Starz (LSTZA) as he believes their plans to split from Liberty Media Interactive (LINTA) will be finalized in 2011.
"We expect Liberty to receive the declaratory ruling in [the first-quarter of 2011], but an appeal could add several months to the process," Ratcliffe said. "Certainty on this issue is a must-have for the deal, as the risk of a future covenant violation -- and cross-default -- is unacceptable."
In June, 2010 Liberty president and CEO Greg Maffei announced his plans to separate Liberty Capital and Liberty Starz tracking stock groups from the Liberty Interactive tracking stock group."We are pleased to announce our plan to make Liberty Interactive an asset-backed stock by splitting off Liberty Capital and Liberty Starz," Maffei said. "An asset-backed Liberty Interactive will provide better transparency on Liberty's operating businesses, enable more efficient capital raising, and permit us to better pursue our strategic objectives, including acquisitions using stock." Ratcliffe says his 2011 year-end price target for Liberty Starz is $72, on his forecast that Starz will strike an over-the-top deal with Netflix (NFLX) or another company such as Amazon (AMZN) or Google (GOOG). He predicts that over-the-top will be a key revenue source, bringing in $160 million in annualized revenue beginning in the mid-2011. "With our forecast for relatively flat subscribership over the next few years, despite increased spending on original programming, we view over-the-top revenue as Starz's primary growth driver in 2011," Ratcliffe said. Ratcliffe noted that the Liberty will continue to benefit from the positive performance of its equity affiliate, Sirius XM (SIRI), as the satellite radio company's shares makes up 45% of gross assets Liberty Media Capital's value. Sirius has been a key driver of Liberty's share performance over the past year. Liberty Media Capital is up more than 145% over the past year, while Sirius has risen 133%. Liberty Media Capital shares are up more than 2.1% to $59.78, while Liberty Media Starz is up 0.6% to $66.94. Liberty Media Interactive is up 0.9% to $15.95 and Sirius XM shares are up about 4% to $1.46. -- Written by Theresa McCabe in Boston.
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