Why Berkshire Hathaway Loves Radio

Mr Warren E. Buffett and Co. are on manoeuvres with the media again

Apr 16, 2024

There’s something going on in Omaha. With only weeks to go before Berkshire Hathaway’s famous Annual General Meeting in Nebraska on 4 May, the conglomerate continues to increase its stake in Liberty Sirius XM, one of the entities behind New York-based broadcaster Sirius XM.

You have to presume that Warren Buffett, once a major investor in The Washington Post, hasn’t decided to back Howard Stern so late in both of their careers. Perhaps Berkshire’s investment in the company is a classic value play or an angle on the US general election? Ad rates and listenership could both go up as the White House contest hots up.

For Buffett watchers, however, there is another theory in town — the move is an arbitrage bet. To understand this thesis, we have to take a step back and look at what Liberty Media owns.

The NASDAQ-listed company has a 83.4% stake in Sirius XM, it owns the Formula One Group (it just purchased the commercial rights for MotoGP) and the business has a 30% stake in LiveNation, the holding company of Ticketmaster.

Here’s where things get interesting. If you invest in most listed media conglomerates, say News Corp or Disney, you aren’t able to back individual business divisions (Dow Jones, Marvel and so on). But with Liberty Media, you can, at least for now.

Beyond the parent company shares (Liberty Media Corp), the business has a tracking stock system, in which there are three classes of shares (A, B and C) across the three business divisions – Liberty Sirius XM Group, Formula One Group and Liberty Live Group.

Berkshire has been buying into the Class A and C shares of the Sirius XM tracking stocks (LSXMA and LSXMK). This is where things get more complicated.

It is important to note that these shares trade separately from Sirius XM Holdings Inc, which is under the ‘SIRI’ ticker. So, in total, you have four ways to invest in the company: through the three tracking stocks (LSXMA, LSXMB and LSXMK) and the one holding company share, SIRI. Are you following at the back?

Here’s the key question: why would this be of interest to Buffett and Co.? The Berkshire watchers are pointing to an announcement made by Liberty Media in December last year.

The companies decided to simplify the share structure ownership, bringing together the tracking stocks (LSXMA, LSXMB and LSXMK) and SiriusXM Holdings to create a new public company, ‘New SiriusXM’.

“This combination will create value for all stockholders by eliminating the tracking stock structure, enhancing liquidity and allowing former LSXM stockholders to participate directly in the ongoing performance of SiriusXM,” Liberty President and CEO Greg Maffei said at the time.

To understand the theory further, we’re going to have to do some maths. If you multiple the outstanding amount of shares for each tracker stock (Class A: 98,140,522, Class B: 9,755,336, Class C: 218,692,746) by their share price and then add them together, you will be left with around $8 billion.

This represents Liberty’s 83% stake in Sirius XM. At 100%, that would be a market cap of around $9.3 billion. But, by comparison, Sirius XM holdings is valued at $12.1 billion.

Berkshire has therefore been able to buy the tracker shares at a cheaper price and the gap in value will close as part of the merger. Warren will be declared a genius once again.

But not so fast. This being the public markets and all, the shares, whether it’s the tracker stocks or the holding one, can still slide. And the merger, although it’s not likely, could not go ahead. If it does get the green light (it’s planned for Q3 2024), Berkshire’s potential gains will come down to what Mr. Market values the new and combined company at.

Ultimately, the company was successful with a similar play when it went long on Activision Blizzard during Microsoft’s acquisition of the video games business. But the deal was looking pretty shaky when regulators, including the UK’s CMA, weighed in on the agreement. Buffett dumped a significant holding in Activision before the merger got over the line.

We will have to wait until 4 May to potentially find out the full thinking behind the positions and who at Berkshire is running the play, whether that’s Buffett himself or the company’s two other investment managers, Todd Combs or Ted Weschler, the protégés. Go West, young value investors!

🤔 Other tech and media news I’ve found interesting

So much ‘truth’, so little time. It’s becoming increasingly hard to keep up with the news coming out of Trump’s media company, TMTG. The former President is in court, the company wants to issue 21.49 million new shares of common stock, diluting its current shareholders, and it’s now unveiled more details about Truth+, the streaming platform it plans to launch next year. So what’s new? The roll-out of Truth+ will come in three stages, with Truth Social app users getting access to the product first. And, as Trump cosies up to the evangelical right, TMTG has promised to stream religious content on the platform. Get all of your TMTG updates here.

Liz Truss’ many exclusives. The former PM (49 days in Number 10) is doing the media rounds for her new book, Ten Years to Save the West. It is strangely listed as a ‘philosophical biography’ on Amazon — it’s neither — and Truss has lined-up a string of ‘exclusive’ interviews to promote the book. They are currently ‘exclusive’ to The Mail, The Sun, TalkTV and GBNews. That doesn’t seem very ‘exclusive’ to me.

But at least Truss is faring better than some other right-wingers over the past couple of days. The NatCon conference in Brussels was shut down by police after an order from the socialist mayor of Brussels. It was all in the name of ‘public safety’ of course. Oh, and the ‘far right’ aren’t welcome in the city. So much for free speech in the heart of the EU.

$300,000 a month. Semafor is reporting that left-leaning outlet The Intercept is running out of cash. It’s costs are at $300,000 per month, which seems like an awful lot for a modest-sized outlet. Presumably, a lot of that is covering staff?

UK’s AI strategy shifts. There’s been a bit of a step-change from Rishi Sunak and The Department for Science, Innovation and Technology. They had previously ruled-out specific AI laws. The idea was to be flexible and regulate through existing bodies. But copyright, and the potential abuse of IP, has been a massive issue for the creative sectors. Now the UK could have its own AI laws.

The Daily Beast’s owner-operators. Media veterans Ben Sherwood and Joanna Coles are teaming up with IAC Chair and billionaire Barry Diller in an attempt to turn The Daily Beast’s fortunes around. They’ve got a new strategy for the outlet and skin in the game, taking a 50% stake in the outlet. Sherwood becomes CEO and publisher, while Coles is appointed as chief creative and content officer. At one point Diller had reportedly considered selling the online publication.

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