LiLAC Group (NASDAQ:LILA) is a tracking stock distributed by Liberty Global during the third calendar quarter of 2015 designed to provide an avenue to tap growth opporutnities available in Latin America and the Caribbean. In May of 2016, Liberty Global closed its acquisition of Cable & Wireless Communications and attributed the operations to LiLAC Group. The consideration paid included new shares of both the Latin American and European tracking stocks. To compensate the European tracker stockholders, Liberty Global received a 67% intergroup stake in LiLAC. In an effort to remove this complexity and restore the Latin America tracker to full public ownership, Liberty Global announced on June 2 the intergroup stake would be distributed directly to shareholders. Shares were subsequently pressured, as many shareholders either sold short the new LiLAC shares before they were received or sold outright after the distribution. As the selling pressure abated, shares fell again after LiLAC missed earnings expectations in the most recent quarter.
LiLAC Group’s shares declined after LiLAC reported third quarter results that were below Wall Street’s expectations. This was the first quarter since LiLAC closed the acquisition of Cable & Wireless Communications. Outside investors largely overestimated the newly acquired asset’s near-term contributions to the combined entity due to different accounting treatments between the two companies and a lack of general information. Missing expectations has created near-term price pressure, but we anticipate that in the coming quarters LiLAC will demonstrate the benefits they saw in this acquisition, beginning with identifying operating synergies for investors.
From Wallace Weitz (Trades, Portfolio)'s third quarter 2016 Partners III Opportunity Fund.
