Spin-Off Research In the News

Atlanta Braves Have Issues But Plunging Stock Isn't One of Them

Posted by Joe Cornell on Thu, Apr 21, 2016 @ 10:04 AM


Oliver Renick | Bloomberg News | April 20, 2016

Yes the Atlanta Braves look awful, and tracking stocks may be a relic of Wall Street’s go-go days. But no, shareholders of Liberty Media’s baseball assets have not seen the value of their holdings halved since stock assigned to them was introduced on Monday.

Much has been made of the plunge in Liberty Braves Group Class A and C tracking shares since their first trades at 9:30 a.m. Monday in New York. The A shares in particular look like lemons, entering the market at $36 and then ending the day at $19.95.

Relax, say analysts, the swoon is an all-but-irrelevant byproduct of the clumsy way tracking shares find their price, and almost nobody has lost anything like 50 percent. While the stock did start the day at rarefied prices, very few people bought or sold while it was there, and the subsequent swoon was for the most part meaningless.

“Those were just bad trades,” Tom Eagan, senior research analyst at Telsey Advisory Group in New York, said of the transactions establishing the $36 open. “Tracking stocks like this often get mispriced, and the Braves are even harder to price because it’s a private enterprise,” he said. “What matters is the enterprise value doesn’t change even if the market cap changes. When they started trading, the Braves started really high and that was just mispricing. ”

Braves shares came into being over the weekend when Liberty Media Corp. was divided into three parts, each with a tracking stock. Along with the baseball team classes, trackers were conjured up for the parent’s share of Sirius XM Holdings and for everything that was left over. Owners of the Braves series, who’ve watched the team start the year 4-9, got a gut-check Monday when the stock opened at $36 and immediately began to plunge.

The initial trades Monday weren’t erroneous -- someone paid $36 to own Liberty Braves. But the damage was limited, as only 6 percent of the 286,000 shares traded that day changed hands for more than $25. 

It wasn’t just the Braves stock that ended the day at a distance from where it began. The new Liberty Media stock opened at $27.43 and settled at $19.03, and the tracker following the value of Sirius XM jumped 11 percent after opening at $28.

To paint the full picture, one has to consider the whole suite of securities now held by Liberty Media shareholders, Eagan said. Those investors received one full share of the Sirius stock, one-fourth of Liberty Media’s, and 1/10 of a Braves share. Liberty Media’s shares were worth $39.06 on Friday -- by the end of the day Monday, the component parts were worth a total of $37.95.

That’s not to say the Braves stock has been spared entirely. They traded at $17.78 on Wednesday, 11 percent below their closing price on Monday. Still, the value of the three parts as of 12 p.m. Wednesday was $39.36, a 0.8 percent gain from the price prior to the division. The initial slippage probably reflects investor skepticism surrounding the tracking stock instrument, according to Joe Cornell, an analyst at Spin- Off Advisors LLC.

John Malone, the billionaire investor and chairman of Liberty Media Corp., loves tracking stocks. A popular financial instrument in the dot-com era, the use of trackers has all but vanished apart from those in Malone’s empire. In 2012, Malone split his Liberty Interactive Corp. into two tracking stocks, one that hews to interests in home shopping services QVC and HSN and another that included shares of Expedia Inc., Time Warner Cable Inc. and AOL Inc.

The Liberty Braves component is worth $18 a share, according to Morgan Stanley analyst Benjamin Swinburne. The current trading price may reflect investors’ improper accounting of the business’s “complicated schedule of liabilities,” he wrote in a note to clients on April 19.

“It’s a bit of a gray market,” Cornell, the analyst at Chicago-based Spin-Off Advisors, said by phone. “Tracking stocks typically will trade at discount. There’s some general knowledge that these things are a little bit flaky so the trading it can be thin and volatile.”



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