Liberty Media ended its brief entrée into broadcast radio on Oct. 5 by selling its entire stake in iHeartMedia, the largest radio broadcaster in the United States. According to an iHeartMedia SEC filing, Liberty Media sold its total holdings of Class A common stock (5.94 million shares) at $25.25 per share in an open market block trade.
By most measures, the Oct. 5 sale was a likely a success for Liberty that grossed $150 million — not including the proceeds from an additional 1 million shares sold for unknown amounts “from time to time,” according to the filing. Liberty had purchased $600 million worth of iHeartMedia debt between November 2017 and February 2018 for $490 million. Then, after iHeartMedia reached a bankruptcy settlement with its bond holders to reduce its debt load, Liberty received 6.54 million shares and 435,000 special warrants for an equal number of Class A common stock — a total of roughly 6.9 million shares.
Liberty Media, headed by John Malone, holds 78% of satellite broadcaster SiriusXM, which owns music streaming service Pandora outright, as well as 32% of Live Nation, the world’s largest concert promoter. It groups the three investments, and its former stake in iHeartMedia, into Liberty SiriusXM Group, which trades as a tracking stock on the Nasdaq. Its other group of businesses include 100% ownership in Formula 1 and the Atlanta Braves baseball team, as well as a minority stake in Kroenke Arena Company, the owner of Ball Arena in Denver.
Quietly unloading its iHeartMedia investment ends Liberty’s attempt to build a market-spanning media conglomerate. iHeartMedia reaches over 90% of Americans each month with roughly 860 AM and FM stations, plus online platforms and a growing podcast business. Its digital audio businesses are among the largest in the country: SiriusXM has over 30 million satellite radio subscribers and Pandora averaged 51.7 million monthly listeners in the second quarter of 2021. In concerts, Live Nation’s U.S. attendance was 62.7 million in 2019, the latest year to be unaffected by the pandemic. In total, the four companies account for roughly $22 billion to $23 billion in consumer and brand spending annually, based on pre-pandemic earnings.
“We appreciate Liberty’s support for iHeartMedia, originally as a holder of debt which then converted into a meaningful equity stake, and we are delighted that they received a good return on their investment,” said a iHeartMedia spokesperson in a statement.
Liberty Media declined to comment.
Any number of reasons could be behind Liberty’s decision to sell its iHeartMedia stake. Liberty could have sold for tax purposes before Biden administration changes take effect in 2022 — the company excels at complex financial wizardry to reduce its tax obligations. It could have anticipated regulatory roadblocks from Biden’s Department of Justice ahead of buying a larger stake in either iHeartMedia or SiriusXM. Given Liberty Media’s penchant for investing in distressed companies at low prices, its exit from iHeartMedia could have simply been motivated by the promise of a big payday: Radio companies’ stock prices have rebounded from their sharp declines in the pandemic’s earliest days. iHeartMedia went public at $17 in June 2019 and fell to $4.31 on April 3, 2020. Its share have traded above $20 since May 7, 2020 and closed at $21.66 on Monday (Oct. 18).
Whatever is behind Liberty’s decision, “it is rarely a good thing when the most intelligent folks in the room — and one their largest shareholders — are selling,” Jeff Wlodarczak of Pivotal Research Group told Billboard in an email.
iHeartMedia’s financial struggles provided Liberty with a buying opportunity. Formerly Clear Channel Communications, iHeartMedia is the parent company of iHeartRadio, the largest radio broadcaster in the United States, and was acquired by two private equity firms — Bain Capital Partners and Thomas H. Lee Partners — in a leveraged buyout in 2008. The transaction saddled the company with large interest payments that ate into earnings.
“Liberty is patient and opportunist — maybe to an extreme,” says an investor. During iHeartMedia’s prolonged negotiations with debtors, Liberty Media snared $600 million of the company’s nearly $20 billion of long-term debt at a discount.
When it finds a distressed asset, Liberty makes an offer that appears one-sided but involves risk. In 2009, it kept SiriusXM out of bankruptcy with a $530 million loan that converted to a 40% stake that’s worth roughly $8.5 billion today. In 2019, when iHeartMedia was negotiating with bond holders to stave off bankruptcy, Liberty offered to buy a 40% stake for $1.16 billion and provide financial support once it filed for bankruptcy; iHeartMedia’s lenders and note holders rejected the offer. iHeartMedia filed for Chapter 11 bankruptcy protection in March 2018 and, after a settlement with holders of more than $10 billion of its $20 billion of long-term debt, exited bankruptcy reorganization in 2019. Liberty Media’s notes converted into Class B shares and warrants, which it later converted into the Class A shares it sold on Oct. 5.
But iHeartMedia is no longer the kind of high-risk, inexpensive investment that Liberty often chases. With the economy recovering from its pandemic lows, iHeartMedia’s share price increased about 200% since Liberty Media received DOJ approval to acquire up to 50% of iHeartMedia’s debt (amounting to roughly $2.8 billion at the time) or common stock in July 2020. And iHeartMedia could get more expensive: Eight equity analysts tracked by Refinitiv have an average price target for iHeartMedia of $32.50 — 50% higher than Monday’s closing price of $21.66.
By selling its stake in iHeartMedia, Liberty effectively cancels any hopes of creating a “full stack” media company. The combination of broadcasting and live events has obvious promotional opportunities for both companies. It had been tried before, in fact: Clear Channel, iHeartMedia’s predecessor, spun off its live events business, rebranded to Live Nation, in 2005. A clearer benefit would have come from Liberty providing connective tissue across AM/FM broadcasters, satellite radio and online streaming companies. By owning or having a stake in these companies, Liberty Media could have become a major influencer in how nearly all Americans listen to music and attend concerts.
UPDATE: This article was updated Oct. 19 at 4:10 p.m. EST to include iHeartMedia’s statement.