Liberty Media (L - 9,10,10) said this morning that it has completed the spinoff of its new Liberty Media International (LBTYA) subsidiary. As a result, shares of L are trading at $9.34 this morning, while LBTYA is trading at $37.30.

Per the terms of the spin-off, holders of L should soon be receiving .05 shares of LBTYA for each 1 share of L that they owned as June 1st, 2004 and still hold today. Your broker should seamlessly take care of getting you these shares. Please call your broker if you have any questions.

L holders are essentially receiving $1.86 worth of LBTYA value for each L share they hold, thus the reason the stock is trading at $9.32 versus yesterday's close of $11.20.

Liberty Media International is comprised of L's majority-owned European cable business UnitedGlobalCom (UCOMA - 8,8,9), its Japanese cable assets (Jupiter Telecommunications and Jupiter Programming) and Liberty Cablevision of Puerto Rico, among other assets.

By our estimates, the market is currently valuing these assets at roughly $5.5 billion on a market cap basis. L said it is planning a $500 million LBTYA rights offering for the new spinoff in order to pay down debt and provide working capital.

It will be interesting to see how UCOMA trades now that LBTYA exists. Will investors now favor owning the latter basket over UCOMA itself? Perhaps. Likewise, we already own a 4% position in UCOMA in the Babe Ruth portfolio, and we'll now have a 1% LBTYA position in the Tiger Woods portfolio thanks to our original 6.5% weighting in L. We like having exposure to the fast growing international assets, so we'll probably hold both positions. It doesn't make sense to sell UCOMA to buy LBTYA because of the tax inefficiency of doing so (we don't pay taxes in our model portfolios, but we know many of you do), unless you can make that switch in a tax advantage account. More broadly, we just need to sit down and think about what our exposure to L, UCOMA, and LBTYA should look like in relationship to one another -- we plan to do so, so look for more thoughts on this front in the coming week or so.

Over time, we think it's likely that LBTYA will seek to use its new public currency to fully consolidate its underlying holdings such as UCOMA and Jupiter. This won't happen immediately, however, due to various corporate tax implications etc.

As long time subscribers know, L has long been one of our favorite holdings. The Liberty Media International spin off is designed to help close the gap in the valuation discount between L's net asset value and the value attached to the name by Wall Street. Analysts estimate that L trades at a 30% to 50% discount to the value of its underlying assets.

We've long argued that L is undervalued versus its core asset value, and that Wall Street is ignoring the company's strong operating growth rates. However, the stock has only been a decent performer, up 11% over our average buy price of $10.05 and up 18.5% over our original entry level. (FYI: We're up 143% over our average UCOMA buy price, and 221% over our initial buy price.)

We think L's John Malone - who owns lots of L and LBTYA along with his family - is determined to narrow the valuation discount by simplifying the company's structure and smartly exiting/swapping out of tax liable positions, as is evident by the international spinout and his prior deal to take full control of QVC. We'd look for additional deals like this.

At some point, L will get the valuation it deserves - and it could happen on a moment's notice as we saw with MGM (MGM) being revalued higher. We think the ultimate return will justify the interim patience of holding L and LBTYA.

We'd continue to be buyers of L for long term focused accounts, and we'd be buying/holding LBTYA at these levels. We'd also continue holding UCOMA, but we'd prefer buying LBTYA over UCOMA if you're looking to allocate new capital.

For more information on L et al, see our extensive Liberty Media-related archive.

As always, we'll keep you posted.

Liberty Media Completes Spin Off of Liberty Media International.