Weekend thoughts: aging lions, disappointing heirs, and succession changes $IAC $FWONA
The past ~two months have been an interesting time for TMT bagholders.
In November, Liberty announced longtime CEO / John Malone’s right hand man Greg Maffei would be stepping down. Then, a few weeks ago, Barry Diller’s IAC announced CEO Joey Levin would be leaving.1
The turnover at the top is fascinating for a bunch of reasons; both IAC and Liberty are multi-billion dollar corporations with their hands in a lot of different pies (though Liberty is obviously significantly larger). I’m sure there’s tons of palace intrigue that could (and will!) be written about both succession processes.
But, from an investor standpoint, I think it’s really interesting to look at what these moves mean for the future of both empires. In particular, while these announcements look similar on the surface (80+ year old billionaire in charge of sprawling empire loses right hand man and announces some simplification transactions), I think the differences between the two actions reveal a lot about the future of both empires.
That key difference I’m referring to?
How each man is handling the succession.
At IAC, it will now be the Barry Diller show (again). Joey (the soon to be former CEO) is leaving IAC to head ANGI, and the IAC press release includes this quote from Barry: “Joey Levin has wanted a store of his own for some time and the spin-off of Angi affords him this opportunity.”
Remember, Barry is >80. Joey has been CEO at IAC for almost a decade. If he wanted a store of his own, IAC would have been a very obvious place to do so given Barry’s age. Instead, ANGI is spinning out with Joey at the head, and IAC will not find a new CEO. Instead, all of IAC’s management team will report to Barry (who will retain his Senior Executive / Chairman role).
Sure, there could be a ton going on behind the scenes, but an easy way to summarize that transaction is this: Joey wanted even more control / authority, and when he sought that at IAC (perhaps thinking a >80 year old Barry was ready to cede some), he was pushed out to his own, smaller entity, with Barry reclaiming full control of the mothership.
Contrast that to what happened with Malone at Liberty. When Maffei stepped down, Malone stepped in as interim CEO, but he quickly brought in a new CEO (as well as bringing back FWONA’s old CEO to serve as a board member and member of the executive committee).
Now, I’m not a member of either of these boards (obviously)…. but I think the difference is pretty clear. When media titans get older, they can go one of two routes: they can try to hold on forever and pretend they’re immortal2, or they can start to step aside and wrap up their empire.
It seems clear to me IAC is going the former route, while Liberty is going the later. Heck, I think you can even see that in how the succession PRs describe the companies’ futures. IAC’s includes a quote from Joey that notes both IAC and ANGI have a “vigorous future”, while Liberty’s includes a quote from Malone about Liberty being “simpler and more focused than ever before” while also noting that he is “acutely focused on rationalizing the structural discounts at Liberty Media and growing our attractive, cash generative businesses.”
From an investor standpoint, I think the succession angle / drama creates for some really interesting opportunities at Liberty. Again, Malone is noting that he wants his empire to be simpler and he is focused on rationalizing the structural discounts, and he’s not just saying that. His actions over the past ~year suggest that he is a man who is looking to wind down and simplify his empire in his twilight. Over past year, he has:
Pursued and completed the long awaited Liberty Sirius / Sirius collapse
Announced a collapse / merger between Liberty Broadband and Charter3
Announced a collapse / merger between Liberty Tripadvisor and Tripadvisor
I believe this is much more Maffei’s move than Malone, and driven by some idiosyncratic financing issues, but I’ll still put it into “simplification”
Liberty Global spun off Sunrise
This is a particularly curious transaction; Liberty Global owns european cable assets across Europe. Sunrise consists of just its Swiss business; it seems quite strange to spinoff just one company that is clearly inside of Liberty Global’s focus / wheelhouse…. unless you think Malone is cleaning up the wholeco for a sale to simplify / wrap up his empire (as this article is arguing!)
Any one of those corporate actions could be looked at in isolation as just a normal Malone move. The man is no stranger to corporate M&A and collapsing his liberty holdcos into their subsidiaries when the time is right; heck, just to chose one example, here’s a Liberty + DTV collapse way back in 2009!
But I think dismissing these moves by saying “Malone has done these collapse transactions before” misses the forest for the trees. Malone has never engaged in this much simplification / collapsing across his empire before. Yes, he would often split out assets when they were held at the same holdco to isolate specific assets (as he’s done so many times in the past, including the Formula 1 / Liberty Live spin mentioned above or (to use one of many historical examples) the spin of Commerce Hub from Liberty Interactive / QVC in 2016). This time is different; Malone is simplifying almost every asset across his entire empire…. even ones (like Liberty Global / Sunrise) that don’t necessarily scream “we need simplification.”
In 2017, Malone famously (at least to me) told David Faber “the store is always open” when it came to his companies and M&A. And I do believe that; the man has not been afraid to sell his companies when the time and price is right! But, with Maffei gone and Malone starting to push into the last columns of the actuarial tables, I suspect that the store is really open right now. I suspect the next few years will have a wave of Liberty / Malone inspired M&A as he fully wraps his empire up. I think that creates a really interesting set up for event investors; Malone’s companies tend to be really unique assets with lots of strategic value potential. Often, those go unappreciated in the public markets, but carry a large premium when they are sold to a private / strategic buyer.
There is one other angle that is probably worth mentioning before wrapping this up: I think both Diller and Malone made these moves to cement their legacy / get their empires where they wanted them to be before time fully caught up to them….. but I also can’t help but wonder how much of these moves were driven by IAC and Liberty’s recent underperformance. Given all of the corporate ongoings at both companies, it’s hard to show the underperformance in just one chart (though I’ll try with the chart below for IAC)…
….but, if you’re familiar with either company, it’s really hard to argue that IAC and Liberty haven’t massively underperformed over the past few years. Liberty got caught with its pants down during the crisis and needed to do some strange moves to bail out different pieces of their empire (to my chagrin), while it’s hard to point to any recent successes at IAC (the MGM investment was reasonably well timed but has almost certainly underperformed every alternative use case and was honestly kind of weird, ANGI has been a disaster, care was bungled, the dotdash/meredith merger may work out in the end but was ill timed and likely overpriced, etc.).
So I think the corporate moves here were very much about Malone / Diller looking at their empire and having different visions / end games for their legacy…. but I also wonder how much of the moves were the two looking at their empires and their heir apparent and saying “I’m not sure if I can trust them to run the ship when I’m no longer here to back them.”
I’m tempted to wrap this article up here…. but I will give a small little end note. I wrote this article because I’m a long time follower of IAC / Liberty and I’m interested in the dynamics here….. but I also wrote it because (as mentioned above) Liberty has a lot of interesting assets, and I think they’ll all be for sale / sold over the next two years. So I was writing the whole thing with “which do I want to buy / bet on” in mind. I have an idea of one or two (and I will likely write them up on the premium side at some point), but if you’re a Liberty follower and have thoughts on the most interesting places to play Malone wrapping his empire up, I’d love to hear it! Hit me up in the comments, my twitter DMs, or just shoot me a note!
Disclosure: I have a small, untouched PA that is long an extremely small amount of IAC from years ago. I also have some positions in the liberty complex.
Media titans pretending they’re immortal and creating weird succession dynamics is the core of the plot of Succession…. which takes a lot of its plot from the life of Rupert Murdoch, who was Diller’s boss for a long time. Kind of funny that Diller seems to be running the Murdoch playbook here; perhaps Diller is thinking “I’m way younger than Rupert and Rupert is still running the media titan playbook; why can’t I do this for another decade!”
I am long Charter and LBRDA
It's interesting how Malone has started to go for simplification of his companies. I remember when I first saw one of his structures, it took me a while to wrap my head around it (I was a young analyst at the time 🤣).
I bet you have already read it, but if you haven't, check out Cable Cowboys. It's pretty interesting, talks about Malone and the cable industry.
Malone is definitely cleaning up his empire. But, with one or two exceptions, I’m not sure it will lead to a lot of M&A. My impression is that he is arranging his affairs so that the Liberty complex will consist of stable income producing assets that don’t require catalysts for value creation. After the dust settles on the current transactions, Malone will be left with passive investments in SIRI and CHTR, and control investments in BATR, LLYV, FWON, and LBTY (I’m ignoring QRTE and LTRP). BATR and FWON seem like the type of assets you leave to your kids (and Malone has been nibbling on BATRA shares recently). That leaves LLYV, which requires further maneuvering to realize full value, and LBTY. Of these, LBTY is the most interesting – further consolidation and convergence in European telecom seems to make sense and it would not be surprising to see LBTY as a seller at this point.