LBTYA - Liberty Global

[scorpioncapital]

Amazing how difficult it is to get rid of this asset. I wonder how many other assets in the world would have a very different valuation If they were put up for sale. Of course having a large shareholder block of the acquirer that is intransigent doesn't help.

 

I don't quite understand why liberty just didn't offer an 8 Percent discount which would be the same thing as taking back 8 percent in shares. Tax reasons ?

 

[thefatbaboon]

Why is it the same?  You think the shares are worthless?

 

 

[ander]

Scorpion - I disagree. Better to take the shares than the discount. They can later sell the shares, no? Unless like thefatbaboon is asking that you think the shares are worthless which I don't.

 

 

 

Some more detail in this press release re: Fries comments, the point that 3 proxy advisors support the deal, and they disagree with ISS.

 

 

DENVER, Colorado--(BUSINESS WIRE)-- Liberty Global plc(LBTYA) (“Liberty Global”) and Sunrise Communications AG (“Sunrise”) today announced an agreement whereby Liberty Global(LBTYA) will support Sunrise’s rights offering related to the acquisition of UPC Switzerland1.

 

Liberty Global (LBTYA) has agreed to support the Sunrise rights offering up to an aggregate amount of CHF 500 million2 through the purchase of tradeable subscription rights at market prices and the subsequent purchase of newly issued shares, if any, in the rights offering. If fully utilized, Liberty Global’s resulting ownership would reach 7.8% at current market prices3. Sunrise and Liberty Global(LBTYA) have also agreed that Liberty Global(LBTYA) will receive one board seat nomination as long as its shareholding exceeds 5%. All other terms of the CHF 6.3 billion transaction remain unchanged.

 

“We have always believed in the logic of this combination. It creates a national powerhouse that will provide a fully-converged challenger to Swisscom and represents a smart and accretive transaction for both Sunrise and Liberty shareholders,” said Mike Fries, CEO of Liberty Global(LBTYA). “We are also happy to support the financing. Both investors and consumers win when this deal closes. Olaf and his team are excellent operators and are uniquely qualified to realize the strategic and financial benefits of the merger.”

 

Sunrise shareholders will vote to approve the relevant capital increase required to consummate the transaction on October 23rd. The Swiss regulatory authority, WEKO, approved the deal without conditions, citing the fact that it will create the second largest telecommunications carrier in Switzerland and that the combination will stimulate competition. Glass Lewis, Ethos, zRating, three leading proxy advisory firms, recommended Sunrise shareowners approve the capital increase.

 

Separately, ISS issued a flawed report recommending that Sunrise shareholders vote against the capital increase. While ISS found the combined entity “could reasonably provide a strategic advantage” over the near and medium term, it raised unfounded concerns about the long-term viability of UPC’s fiber-rich HFC networks versus emerging technologies and, among other errors, misstated both current and historical transaction multiples.

 

“ISS demonstrated a surprisingly poor understanding of the telecom industry in this report,” said Fries. “Fixed-mobile convergence is the future. Industry leaders, regulators and sector analysts all agree on that point. European operators have already completed over €100 billion in transactions just like this one, and at even higher multiples. Nearly all of these transactions involved cable networks precisely because our systems are fiber-rich and future-proof. That’s just one of the many reasons we are so confident in UPC Switzerland even if this deal does not close. We’ve already launched gigabit speeds throughout Switzerland as well as 20 cities across Europe and, unlike telecom incumbents, have the fastest and most efficient path to 10 gig speeds down the road.”

 

[reader]

Capital keeps pouring into the U.K. broadband market  :o

 

KKR Acquires Majority Stake in Hyperoptic

 

https://ir.kkr.com/news-releases/news-release-details/kkr-acquires-majority-stake-hyperoptic

 

"Founded in 2011, Hyperoptic benefits from a full fibre network covering 43 towns and cities across the UK, with gigabit broadband services passing almost 400,000 homes and businesses."

 

 

"Currently, only 8% of the UK has access to full fibre and less than half of that to symmetrical gigabit services.

 

We are confident that with the support of KKR and their significant expertise enabling high-growth businesses, our ambitious infrastructure plans to build our hyperfast network out to two million homes by 2021 and five million by 2024 will be realised.”

[scorpioncapital]

Does anyone know what this means ? Will they try to raise debt for the deal from banks until February 2020 without the need for shareholder approval?

 

"DENVER, Colorado--(BUSINESS WIRE)-- Liberty Global plc (LBTYA) (“Liberty Global” or the “Company”) (NASDAQ: LBTYA, LBTYB and LBTYK) announced today that it supports the cancellation of Sunrise Communications’ Extraordinary General Meeting (EGM), which had been scheduled to take place Wednesday, October 23, 2019. Sunrise was seeking approval for an ordinary capital increase by way of a rights offering to finance its pending acquisition of UPC Switzerland. Sunrise has reviewed the vote tally, including the intention of its largest shareholder Freenet to vote against the deal, and determined that the proposal was unlikely to be approved by shareholders.

 

The existing share purchase agreement between the parties will remain in place with some minor amendments, including the flexibility to convene a new EGM and certain adjusted termination rights. In addition, the commitments by Liberty Global in the recently announced Conditional Rights Purchase Agreement will lapse and thereby terminate"

 

[forest81]

Deals off as per FT 5 mins ago.

[scorpioncapital]

Seems the market believes the entire upc Switzerland is a write off?

 

[maybe4less]

Seems the market believes the entire upc Switzerland is a write off?

 

That's what Sunrise's CEO is saying: that the deal is off. Maybe a bargaining tactic though. Hard to say.

[scorpioncapital]

It's quite interesting both upc and sunrise said they will focus on going it alone..yet the deal is technically on until Feb 2020. What could happen ? A lower price ? A joint venture ? Maybe a partial sale like 51 percent? I presume that the contract says they can't shop a 3rd party while the deal is still technically pending? Or freenet sells their shares to liberty in exchange for sunrise buying upc with liberty owning 25 percent of the larger more competitive Swiss provider? This actually seems like a better idea and would conform to their Netherlands Belgium and other joint venture deals. Definitely safer way to get it off the books in a 2 step process.

[scorpioncapital]

Now that the deal is off, any thoughts on the all time new low price? Is Europe - including UK a broken model for fixed broadband, an experience that will be perpetually different than the same kind of investment within the USA due to regulatory issues and negative interest rates where even if a 5G network or any network costs tens of billions to build there is nothing but free-dumb money flowing into it , a race to the bottom with rational actors like Liberty stuck in the middle?

[dontdodebt]

I would also be thankful if everyone that see risks with this business to explain what they are.

 

Obviously there business has a lot of complexity and because of the high leverage, you do not want anything to go south since the equity can easily dissapear.

 

However, given their new laser like focus on divesting business they can sell for premium prices going forward, all time high quality of premium services and products, bringing down the complexity, increasingly cash flows because of lower need for growth/upgrade costs going forward, massive share buy backs....given the cash flows and the strategic plan this have the potential to be a 3x or with some luck even more per share or something like that in 5 years IMO.

 

Clearly, the market is very skeptical and I would like to learn why.

[vince]

Now that the deal is off, any thoughts on the all time new low price? Is Europe - including UK a broken model for fixed broadband, an experience that will be perpetually different than the same kind of investment within the USA due to regulatory issues and negative interest rates where even if a 5G network or any network costs tens of billions to build there is nothing but free-dumb money flowing into it , a race to the bottom with rational actors like Liberty stuck in the middle?

 

Not at an all time low, and although there is a chance of a race to the bottom, it's not likely in my opinion. Furthermore, even if it does happen to be more competitive, Global's assets are still valuable and today's price is VERY unlikely to be expensive relative to true value.  Having said that, I was too confident about their future prospects looking out from 2014 and I have definitely been wrong.  But after 5 years and a substantial loss, I think it would be crazy to sell at these prices.  The business is selling for prices that assume a long modest decline, yet their operating cash flow has grown every quarter, yoy, for 10 years (there may be one or two qtrs where they didn't actually grow) and it looks like that will continue (at low single digit rates) for the most part.  On top of that, I can't think of another person I would rather have navigating this exact situation than Malone and if the growth rate over time does in fact turn to negative low single digits, I think it will still be a profitable investment from these prices.  Historically, and ESPECIALLY within the last few years, the market has been overly punishing to businesses that are not living up to analyst expectations, businesses that are not growing, and most notably businesses that have negative growth rates, over multiple quarters, even when the assets in question are very defensible over time.  I have seen quite a few stocks with a 5 handle over the last couple years.  When interest rates are at 2%, a 5 handle doesn't make sense for a reasonably good business, an owner oriented mgmt (This is where owner friendly mgmt's can create enormous value relative to widespread pessimism), and a plan that makes sense for preserving value.  I admit it can be very hard to disregard the current stock price and focus on the few variables that carry most of the weight, and sometimes you will be just plain wrong, (but here you have to be careful distinguishing between being wrong versus having a fundamentally sound process but still turned out to be wrong) but having the proper temperament, in my experience, has produced some amazing winners.  To be fair, it has also produced a few losers and it opens you up to looking very foolish.  I will take the net profits over looking foolish occasionally, all day long.

[dontdodebt]

I also think that their strategy going forward of having the goal of selling at premium prices when they can, buy back stock and maybe deleverage all in all will decrease risk and in the end will have a lollapalooza effect. Obviously, if they manage to succesfully divest the less efficient operations for premium prices to someone that will have a better use for the asset, focus and keep their best assets WHILE the stock price is depressed, then this could turn out to be one of the best investments world wide the coming 10 years.

 

The problem I think is that, at least for me, it is very hard to build a good understanding of the business as a whole, risks, opportunities, regulations and so on. My understanding of it in general is so bad that a lot of bad things could happen that I´m not aware of, and that is why I still don´t want to build a major position in this.

[vince]

I also think that their strategy going forward of having the goal of selling at premium prices when they can, buy back stock and maybe deleverage all in all will decrease risk and in the end will have a lollapalooza effect. Obviously, if they manage to succesfully divest the less efficient operations for premium prices to someone that will have a better use for the asset, focus and keep their best assets WHILE the stock price is depressed, then this could turn out to be one of the best investments world wide the coming 10 years.

 

The problem I think is that, at least for me, it is very hard to build a good understanding of the business as a whole, risks, opportunities, regulations and so on. My understanding of it in general is so bad that a lot of bad things could happen that I´m not aware of, and that is why I still don´t want to build a major position in this.

 

What makes it so difficult for you to understand?  The most important thing to focus on is their position with their cable plant relative to what's out there now and what's coming.  If their coax/fiber infrastructure remains superior (fiber is superior in terms of performance but the capital intensive nature of fiber doesn't make economic sense especially when coax will be sufficient for many years to come) in terms of cost/performance, then the business is defensible......value should rise at least modestly over time probably in line with nominal gdp.  Probably a good idea, if you are interested, to focus your research on the characteristics of the cable plant and acquire the confidence needed to hang in there when the stock price goes crazy.  Obviously you will need to spend some time on their potential financial risk etc but the most effective process, imo, is to narrow down the thesis to the few critical variables that are potentially knowable and to ignore noise (make the proper adjustments where noise is present) and variables that are unknowable.  Once you understand the value drivers and the probabilities around sustainability of the plant then you can move on to valuation.  I think you will find that it's not that difficult to put a pretty tight sum of the parts value range on the various geographical assets.  There are many comps, both recent and historical.  In addition, I find it fairly easy, once you understand the industry to accurately predict what the true current earning power is of the various assets, which is absolutely critical when there is a transition going on, lots of acquisitions, lots of asset sales, lots of noise.  It's a powerful advantage when you can ignore what people are saying because you know roughly what their earning power is.

[scorpioncapital]

https://www.telecomtv.com/content/5g/why-sunrise-is-going-to-double-down-on-5g-36822/

 

https://www.cnbc.com/2019/11/12/common-networks-bets-5g-will-replace-cable-internet-in-your-home.html

 

It seems 5G could make fixed broadband a dead business. Anyone think it's premature or is this happening before our eyes and fixed broadband investments are going to zero..slowly?

 

 

[cameronfen]

https://www.telecomtv.com/content/5g/why-sunrise-is-going-to-double-down-on-5g-36822/

 

https://www.cnbc.com/2019/11/12/common-networks-bets-5g-will-replace-cable-internet-in-your-home.html

 

It seems 5G could make fixed broadband a dead business. Anyone think it's premature or is this happening before our eyes and fixed broadband investments are going to zero..slowly?

 

I remember having this discussion on the charter thread so you can look there.  It might happen but it will be a slow moving crash and so hopefully if you are careful you can bail. 

[scorpioncapital]

I guess we can only hope the Malone family sees the writing on the wall at the right time to not only preserve shareholder capital but also to offer a decent return. If they get blinded , as sometimes happens , it could be expensive for shareholders. Not sure how to position size the 5g risk but I keep coming back to pricing and costs. Even if you see 5g as a new entrant with the same pricing as 1gbps cable you have a new market player to share the entire broadband pie. Would a new entrant offering the same price but a sexier technology with more future options take alot of old customers with it ?

 

Some articles on EU and UK cable regulation

 

https://www.technologyslegaledge.com/2018/07/co-investment-models-for-broadband-infrastructure-an-explanation-and-short-critique/#1

 

https://www.ofcom.org.uk/about-ofcom/latest/media/media-releases/2018/statement-bt-regulatory-accounts

 

I get the impression UK is a superior legal regulatory environment to Europe and USA is a superior environment to uk. For now...and not considering 5g rules which seem to be in flux ?

 

Liberty could just downsize , sell everything outside the UK. Pay down debt and buy back shares or hold a reserve for businesses that may not be disintermediated or regulated as much as broadband in UK. Overall the management needs to figure out what is causing value not to be realized with a very stagnating share price.

 

Side note ..saw this in bam letter today

 

"

We believe strongly that as people, places and objects become increasingly interconnected, the importance and

value of data infrastructure assets will continue to grow. Given the ongoing evolution and innovation taking place

in the telecom sector, we are looking to partner with telecom owners by investing in and leasing back their

infrastructure. The other factor that is helpful to this trend is that the capital required to build out this data

infrastructure is far greater than the capital the traditional telecom owners typically have access to within their own

financial resources.

We own the leading independent telecom tower operator in France, with over 7,000 towers and active rooftop

sites. More recently, we secured an exclusive agreement to invest into one of the largest privately-owned tower

business in the world—130,000 telecom towers that support Reliance Jio in India. We have also been acquiring

and building out fiber networks. Our U.K. regulated distribution business is deploying fiber-to-the-home networks

in new housing developments as part of its multi-utility offering in response to customer demand for faster and

more reliable broadband solutions. Meanwhile, our French telecommunications infrastructure business is rolling

out four fiber networks to connect over 700,000 households in the next few years as part of the French

government’s national broadband plan, and in New Zealand we are deploying 5G technology on our network

"

[cameronfen]

https://www.telecomtv.com/content/5g/why-sunrise-is-going-to-double-down-on-5g-36822/

 

https://www.cnbc.com/2019/11/12/common-networks-bets-5g-will-replace-cable-internet-in-your-home.html

 

It seems 5G could make fixed broadband a dead business. Anyone think it's premature or is this happening before our eyes and fixed broadband investments are going to zero..slowly?

 

I remember having this discussion on the charter thread so you can look there.  It might happen but it will be a slow moving crash and so hopefully if you are careful you can bail.

 

Isn´t there a risk that 5G will reach almost everywhere simultaneous and offer a cheaper solution than cable "over night"? (This is what I mean with my previous post, I am so uneducated about whole this business)

 

So afaik, 5g used high frequency spectrum.  The benefit of high frequency spectrum is the light can hold a lot of data.  The downside is it only has the range of one city block.  Thus you need fiber either from buying an existing cable company, or build your own in order to build a 5g network of small cells (basically mini towers with a one block range).  Thus the rollout is slow as telcos build the infrastructure for 5g. 

[scorpioncapital]

Is this a technology issue to overcome or a law of physics?

[cameronfen]

Is this a technology issue to overcome or a law of physics?

 

The low transmitting distance has to do with moisture in the air, which is why you get reports of 5g not working as well in the rain.  Basically the higher frequency stuff gets disapated when it hits water molecules, so it seems like a physics issue with likely fixes that will improve 5g quality in the rain, but nothing on the horizon that will allow 5g to blanket a whole town via one macro cell tower. 

[scorpioncapital]

It seems most 5g operators are going for multiple small towers. Would that work to canvas the entire region? I understand there is issues of ascetics, maybe even health safety, but I see that reported strategy to have many small towers not one.

[rogermunibond]

The US 5G is a sh*tshow since most of the bandwidth is mm wavelength 25-36Ghz.  Not enough mid Ghz bandwidth in the US.

 

China, Japan, SK are all I think using mid Ghz (2-6 Ghz).  It gives the best coverage with decent speed.

 

Europe is looking at 3.5Ghz and 25-26Ghz.

 

Then there are reasons not to use 3-3.5Ghz like interference with weather satellites.

 

 

[no_free_lunch]

The latest cellular technology, 5G, will employ millimeter waves for the first time in addition to microwaves that have been in use for older cellular technologies, 2G through 4G. Given limited reach, 5G will require cell antennas every 100 to 200 meters, exposing many people to millimeter wave radiation. 5G also employs new technologies (e.g., active antennas capable of beam-forming; phased arrays; massive multiple inputs and outputs, known as massive MIMO) which pose unique challenges for measuring exposures.

 

Millimeter waves are mostly absorbed within a few millimeters of human skin and in the surface layers of the cornea. Short-term exposure can have adverse physiological effects in the peripheral nervous system, the immune system and the cardiovascular system. The research suggests that long-term exposure may pose health risks to the skin (e.g., melanoma), the eyes (e.g., ocular melanoma) and the testes (e.g., sterility).

..

As a society, should we invest hundreds of billions of dollars deploying 5G, a cellular technology that requires the installation of 800,000 or more new cell antenna sites in the U.S. close to where we live, work and play?

 

https://blogs.scientificamerican.com/observations/we-have-no-reason-to-believe-5g-is-safe/

 

I don't know Europe that well but perhaps they are more likely to block 5G if there are health issues?  I don't know if I like the idea of 5G to be honest.  I'm not rolling the dice on cancer so people can have higher res netflix on their phone.  To hell with that!

 

On the business, right now it looks like fixed broadband is in slow decline but wireless (4G wireless i believe) is growing enough to make up for it.  It actually seems like a decent bet to me.  One caveat, I would prefer they work on debt paydown rather than share buybacks.  The stock is already very cheap, however it's being held down by the melting ice cube theme coupled with debt risk.  I think if they can use some of their cash hoard to pay debt, it could have more of an impact on the stock than other forms of capital allocation.

[vince]

https://www.telecomtv.com/content/5g/why-sunrise-is-going-to-double-down-on-5g-36822/

 

https://www.cnbc.com/2019/11/12/common-networks-bets-5g-will-replace-cable-internet-in-your-home.html

 

It seems 5G could make fixed broadband a dead business. Anyone think it's premature or is this happening before our eyes and fixed broadband investments are going to zero..slowly?

 

I remember having this discussion on the charter thread so you can look there.  It might happen but it will be a slow moving crash and so hopefully if you are careful you can bail.

 

I think it's pretty clear that cable is in pole position for 5G as well.  I would rather the potential threat didn't exist at all because change brings challenges and increases the range of potential outcomes (risk).  But it also brings opportunity and if you study telecommunications infrastructure it seems like cable is well positioned to lead the transition to 5G.  That doesn't mean it will necessarily be a net positive in terms of their economics but other factors (performance, cost, time to market) look favorable in terms of cable's positioning.

[dwy000]

Seth Klarman added to his position and it's his top holding.  https://www.dataroma.com/m/holdings.php?m=BAUPOST

 

At least I'm in good company even if I'd rather be in the money.