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Liberty Media Corp at Goldman Sachs Communacopia Conference THOMSON REUTERS STREETEVENTS EDITED TRANSCRIPT LMCA - Liberty Media Corp at Goldman Sachs Communacopia Conference EVENT DATE/TIME: SEPTEMBER 25, 2013 / 3:20PM GMT THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2013 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. SEPTEMBER 25, 2013 / 3:20PM, LMCA - Liberty Media Corp at Goldman Sachs Communacopia Conference CORPORATE PARTICIPANTS Greg Maffei Liberty Media Corporation - President & CEO CONFERENCE CALL PARTICIPANTS Drew Borst Goldman Sachs - Analyst PRESENTATION Drew Borst - Goldman Sachs - Analyst Thanks, everyone. Get started with our next session. I'm Drew Borst, Media Analyst at Goldman. I'm pleased to welcome Greg Maffei to the stage, he's President and CEO of Liberty Media. Greg has served as CEO since February 2006. He's also Chairman of Liberty associated companies; Live Nation, Sirius XM, Starz, and TripAdvisor. He's also a Director at Barnes & Noble, Charter, Zillow, which are also Liberty investments. So there's plenty -- Greg Maffei - Liberty Media Corporation - President & CEO No, Zillow is not. Drew Borst - Goldman Sachs - Analyst Excuse me, Zillow is not. Greg Maffei - Liberty Media Corporation - President & CEO Zillow is a PA. Drew Borst - Goldman Sachs - Analyst So as in my introduction, I mentioned you have a number of investments across the TMT landscape from distributors like Charter and Sirius XM to content creators like Starz to Internet like TripAdvisor. As you think about the growing portfolio, what are the governing principles behind your investments? What types of TMT businesses are you most interested in today? Greg Maffei - Liberty Media Corporation - President & CEO We're way too naive or non-strategic to have such a goal. I mean historically we have liked subscription businesses. I think we understand subscription businesses. We are probably more comfortable utilizing financial leverage on top of businesses that appear more secure and being able to ratchet that rather than operating leverage. So those high margin subscription businesses where we add to the returns by putting financial leverage on, those have been our bread and butter. But if you look at something like Trip, we love Trip, it doesn't fit that model; it has incredibly great cash flow conversion, but really doesn't fit that model. 2 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2013 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. SEPTEMBER 25, 2013 / 3:20PM, LMCA - Liberty Media Corp at Goldman Sachs Communacopia Conference Drew Borst - Goldman Sachs - Analyst As you look at the portfolio, I've noticed that there's a couple examples where you have investments in potential competitors or companies that are in the same arena, like Expedia and TripAdvisor is one example, QVC and HSN is another. Is that a unique part of your strategy or is it just more a coincidence and it's just value and --? Greg Maffei - Liberty Media Corporation - President & CEO It's usually coincidence. So as you know Expedia bought Trip, had them together as one company, then spun it off, and we ended up with the two pieces. It wasn't by our design. QVC and HSN, we had parts of both for a long time and we ended up in -- two autonomous companies buying their actions; and then we ended up buying, taking our 43% of QVC up to 100% back in like 2003. So I don't think it was a design. We do like holding QVC and HSN, I think it gives us a better sense of the market and I think it keeps market stability in that case as probably a positive. Drew Borst - Goldman Sachs - Analyst You've mentioned you're a believer in the judicious use of leverage on the balance sheet. Can you talk about how you think about what's the appropriate leverage at Liberty given that you have relatively modest free cash flow production directly at Liberty Media? Greg Maffei - Liberty Media Corporation - President & CEO So when you say -- and the screen says Liberty Interactive, that's a very different entity, right? We'll talk about that for one second. High free cash flow generation at QVC, we're talking about a fairly high level, and arguably could go higher, level of leverage there on the operating asset. Then we have a bunch of non-cash flow generating assets like an HSN; and just because we don't consolidate it and we don't control the balance sheet, you're probably not willing to put as high a leverage level on that. Flip over to Liberty Media, historically Liberty Media has had very low leverage because, as you rightly point out, we don't have a lot of free cash flow generating assets unless the Braves win the World Series. Today we sit with about $1.1 billion of margin debt against a lot of equity positions; we probably have, I don't know, $500 million of cash something like that or maybe less, $350 million of cash. We have quite a lot of leverage at some of the operating entities like a Sirius, like a Charter; but we are less likely, given the low cash flow generation from those assets up to us, to put much leverage on Liberty Media. And I suspect that -- that margin loan has only an 18-month maturity, at some point we will either through dividends up from Sirius, or share sales of Sirius, or some other kind of longer refinancing mechanism, reduce that margin debt and term it out in some way. Drew Borst - Goldman Sachs - Analyst Notwithstanding the comments about the free cash flow production at Liberty Media, you did recently implement a share repurchase for Liberty Media shares. So I guess I'm wondering how you think about the opportunity of repurchasing your shares versus other investments outside of Liberty? Greg Maffei - Liberty Media Corporation - President & CEO Well, we've been lucky enough to -- if you take the last seven years -- do a lot of both. We put money in things like a Sirius or we upped our stake in DIRECTV, but in addition we bought back something like 45% of Liberty Media. When it was first spun out as Liberty Capital and now it changed 3 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2013 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. SEPTEMBER 25, 2013 / 3:20PM, LMCA - Liberty Media Corp at Goldman Sachs Communacopia Conference its name to Liberty Media, we've bought back something like 45% of the company at something like $35 a share. And if you put the pieces back together of Starz and Liberty Media, you're talking about stock being over $170 so that's been a great return. During a lot of that time we've had discounts to net asset value in the range of 30% plus, a long time at 20%. Today, I don't think we have those kind of discounts and we don't have the free cash. I think I've come to this conference every year and said -- oh yes, one of our big problems is too much cash at Liberty Media and not enough good ideas of what to do with it. That's not true anymore. We've invested quite a lot in Charter, it's worked out well so far. We bought back all that stock, we don't have as much free cash at Liberty Media. So I actually think given the reduced discount, given the lack of cash, we've said we're -- and we did not buy any stock in the last quarter; we're probably not going to have the share repurchase barring some special situations, and we did talk about one obliquely in our earnings release. Barring some special situations, we're not going to have in-the-market share repurchase in the same way at the same volume we've had over the last seven years. Drew Borst - Goldman Sachs - Analyst Within the Liberty family, there's really two entities that focus on equity investments, Liberty Media as well as Liberty Interactive -- Liberty Active Ventures, excuse me. How do you manage the potential conflict between where you put these investments? Greg Maffei - Liberty Media Corporation - President & CEO Potter Stewart said I know pornography when I see it. Generally we know which side goes on which, which fits in. It's not perfect. But I think if it's a more traditional media asset, it's more likely to go into Liberty Media; and if it's something off the rack and differentiated, it's likely to go in Ventures; and if it's an ecommerce company, it's likely to go into Interactive. But I agree it's not a bright line. Drew Borst - Goldman Sachs - Analyst Okay. Maybe I'll go through a series of questions on some of your investments. Maybe the one that's top of mind for everybody, you mentioned it, is the 27% equity stake in Charter, which is the fourth largest cable MSO in the US.
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