LBTYA - Liberty Global

[ni-co]

John Malone talks about levered free cash flow:

 

Definition of 'Levered Free Cash Flow'

 

The free cash flow that remains after a company has paid its obligations on its debt. The levered cash flow represents the amount of cash left over for stockholders and for investment after all obligations are covered. The levered cash flow can be negative while the operating cash flow is positive if the amount of cash paid to cover obligations exceeds the cash that comes from operations.

 

Yes. They are using "net cash provided by operating activities" as a basis and do not add back paid interest. It's not totally "free", though:

 

"We believe that our presentation of FCF provides useful information to our investors because this measure can be used to gauge our ability to service debt and fund new investment opportunities. FCF should not be understood to represent our ability to fund discretionary amounts, as we have various mandatory and contractual obligations, including debt repayments, which are not deducted to arrive at this amount."

[ni-co]

Some food for thought: I hadn't been aware of the g.fast technology until recently. It's going to allow telcos to push their speeds up to 1 Gbps over their copper wire for the last 100m to the home and seems more or less ready to be deployed in 2015.

 

http://www.ftthcouncil.eu/documents/Publications/DandO_Gfast_Paper_2014_Final.pdf

 

A big part of my investment thesis on cable companies rested on the assumption that telcos are forced to significantly increasing capex over the next few years to deploy fibre to stay competitive with the cable companies. Although cable can reach speeds up to 10 Gbps under the DOCSIS 3.1 standard, this gives the telcos a breather of at least a few years.

[Liberty]

LBTYA close to getting approval to buy Ziggo, apparently:

 

http://www.bloomberg.com/news/2014-08-26/liberty-global-said-set-to-win-eu-approval-for-ziggo-bid.html

[merkhet]

I was looking for this earlier, but it turns out it was in the LMCA thread:

 

There is no Liberty Global (LBTYA) message board that I could find, so I thought I would post this here. This is an excerpt about Liberty Global from Dan Loeb's latest letter

 

 

"During the First Quarter, we increased our exposure to LBTYA, Europe's largest cable operator, following the announcement of its acquisition of VMED. The acquisition triggered a wave of investments by arbitrageurs, who created an attractive entry point for us by putting pressure on LBTYA shares. Initiating a position in VMED allowed us to purchase LBTYA at a material discount to its pre-announcment pro forma trading levels.

 

Our initial interest in LBTYA was spurred by multiple catalysts and favorable geo tailwinds. Relative to the US cable market,Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity. Before yearend, we expect catalysts in the stock to include the closeing of the VMED deal, the initiation of a substantial buyback plan, and the unveiling of accretive wireless and B2B initiatives. The wireless mkt in LBYTA's key West Europe markets generates over $73 bill of annual rev, presenting LBTYA with the opportunity to redifine the MVNO market, leveraging a unique WiFi footprint, full back office and system control, and attractive quad play bundles. LBTY also appears poised to ramp up its B2B efforts, particularly in Germany.

 

We believe Liberty’s strategic value as the primary alternative to the incumbent telecom operator’s fixed infrastructure in its markets is overlooked. The growth of mobile broadband will put pressure on carrier spectrum allocations, enhancing the importance of WiFi offload and wireline backhaul infrastructure. In a mobile broadband world, having a strong ground game is more important than ever for wireless operators and European cable players are well‐positioned with dense, upgraded fiber infrastructure offering considerable headroom.

 

In our analysis, pro forma Liberty Global could generate more than $6 per share of free cash flow in fiscal 2014 when factoring in the considerable buyback plan announced along with the acquisition. Through VMED, we had the opportunity to create Liberty Global at slightly more than 10x FY2014 free cash flow per share, giving us the cheapest free cash flow multiple in European cable in a deal that will be free cash flow accretive and meaningfully de‐leveraging to Liberty. Despite the move in the shares following the VMED announcement, Liberty Global’s relative value remains attractive, especially given the recent appreciation of its European cable peers and the interim appreciation of slower growth, mature cable operators in the United States. We believe the shares could trade toward 15x pro forma 2014 free cash flow per share and compound at ~20% per year following the closing.

 

Note that this was pre-split, so post-split, Loeb is thinking more than $3.00 per share of free cash flow. Pretty close to the annualized FCF ni-co mentioned earlier.

[merkhet]

Has anyone heard anything (delay, cancellation, etc.) about the Liberty Global spinoff of VTR & Liberty Cablevision in Latin America? They mentioned this in March 2014 @ the Morgan Stanley TMT conference and again on the 2014Q1 conference call, but strangely no mention of it on the Q2 conference call.

 

Could be interesting. They mentioned that the company only does about $0.5 billion in EBITDA, which, on a company of $8 billion in EBITDA, isn't insignificant, but I could see it being overlooked if spun off.

[ni-co]

I was looking for this earlier, but it turns out it was in the LMCA thread:

 

There is no Liberty Global (LBTYA) message board that I could find, so I thought I would post this here. This is an excerpt about Liberty Global from Dan Loeb's latest letter

 

 

"During the First Quarter, we increased our exposure to LBTYA, Europe's largest cable operator, following the announcement of its acquisition of VMED. The acquisition triggered a wave of investments by arbitrageurs, who created an attractive entry point for us by putting pressure on LBTYA shares. Initiating a position in VMED allowed us to purchase LBTYA at a material discount to its pre-announcment pro forma trading levels.

 

Our initial interest in LBTYA was spurred by multiple catalysts and favorable geo tailwinds. Relative to the US cable market,Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity. Before yearend, we expect catalysts in the stock to include the closeing of the VMED deal, the initiation of a substantial buyback plan, and the unveiling of accretive wireless and B2B initiatives. The wireless mkt in LBYTA's key West Europe markets generates over $73 bill of annual rev, presenting LBTYA with the opportunity to redifine the MVNO market, leveraging a unique WiFi footprint, full back office and system control, and attractive quad play bundles. LBTY also appears poised to ramp up its B2B efforts, particularly in Germany.

 

We believe Liberty’s strategic value as the primary alternative to the incumbent telecom operator’s fixed infrastructure in its markets is overlooked. The growth of mobile broadband will put pressure on carrier spectrum allocations, enhancing the importance of WiFi offload and wireline backhaul infrastructure. In a mobile broadband world, having a strong ground game is more important than ever for wireless operators and European cable players are well‐positioned with dense, upgraded fiber infrastructure offering considerable headroom.

 

In our analysis, pro forma Liberty Global could generate more than $6 per share of free cash flow in fiscal 2014 when factoring in the considerable buyback plan announced along with the acquisition. Through VMED, we had the opportunity to create Liberty Global at slightly more than 10x FY2014 free cash flow per share, giving us the cheapest free cash flow multiple in European cable in a deal that will be free cash flow accretive and meaningfully de‐leveraging to Liberty. Despite the move in the shares following the VMED announcement, Liberty Global’s relative value remains attractive, especially given the recent appreciation of its European cable peers and the interim appreciation of slower growth, mature cable operators in the United States. We believe the shares could trade toward 15x pro forma 2014 free cash flow per share and compound at ~20% per year following the closing.

 

Note that this was pre-split, so post-split, Loeb is thinking more than $3.00 per share of free cash flow. Pretty close to the annualized FCF ni-co mentioned earlier.

 

Thanks, very interesting! Somehow I overlooked this at the time. This is also why I think T&T are loading up on it. LBTYA is a compounding machine.

 

Here in Germany, LBTYA's largest market, people are only beginning to realize that they can get faster internet connectivity and pay less money by connecting through their cable provider (whom they already pay to watch TV!).

 

I did some scuttlebutt research regarding the g.fast technology. Recently switching from VDSL to cable, I interviewed the technician about the future capacity of cable lines vs. telco copper lines and their technical issues. He told me that even at today's internet usage, companies in larger buildings have trouble with their connectivity and speeds through traditional copper lines because of the capacity restraints of copper wires and interference issues. This is driving all kinds of companies to switch to cable – he told me that they hardly have enough personal capacity (technicians) to keep up with the demand.

 

I asked him for the technical reasons of those issues and he told me that copper wires essentially have the characteristics of huge antennas running through the building catching all kinds of signals they're not supposed to and thereby suffering from interference issues, which then impede speed and stability of your internet connection. This was no problem when those wires were only used to transport analogue voice signals but with digital signals with increasing capacity it seems to be an growing problem. At the same time, cable connections not only have much greater capacity but are build from the ground up to minimize those interference issues.

 

So, even if telcos succeeded with their efforts to bring their copper wires up to 1Gbit or more their connections would be less stable and lower capacity with regard to the whole buildings. He also told me that the techniques telcos use to speed up their connections only work or make sense in densely populated areas, because they only work over very short distances. Yet, at least in Germany, population is split up pretty evenly between cities and more rural areas.

 

To sum it up, he essentially confirmed what Malone has been saying for a few years now: By sheer dumb luck cable is technically vastly superior in terms of internet connectivity and will be the connection option for homes and companies for several years. Telcos will have to invest substantially only to keep up with cable companies. This is a huge advantage, essentially guaranteeing years of healthy profit growth for cable companies.

[jouni1]

are there any other differences between share classes than the number of votes?

 

the reason i haven't been investing in malone's companies is that spinoffs etc get taxed like ordinary dividends up here. our government hates financial engineering and efficiency.

 

do you guys think the stock dividend model was a one-off event or are they going to keep on doing it? the last one was in 2005 right? if they do it every ~10 years i don't mind.

 

TIA if anybody has any views on this! i love the cable business. have to start digging into the subsidiaries.

 

[ni-co]

are there any other differences between share classes than the number of votes?

 

the reason i haven't been investing in malone's companies is that spinoffs etc get taxed like ordinary dividends up here. our government hates financial engineering and efficiency.

 

do you guys think the stock dividend model was a one-off event or are they going to keep on doing it? the last one was in 2005 right? if they do it every ~10 years i don't mind.

 

TIA if anybody has any views on this! i love the cable business. have to start digging into the subsidiaries.

 

I don't know your system, but in Germany this was taxable, too. However, if you sold your complete shares immediately after the dividend (classes C and A) and immediately re-bought it, this was essentially a non-event from a tax perspective because you could book a loss on your A shares against the gain on your C share dividend. That's what I did and used the opportunity to change my C shares back to A shares (because I like to have at least some votes).

[jouni1]

i would have to pay capital gains(if there were any ;D) tax on the A shares and dividend tax on the C shares. so it doesn't really work for me. i'm assuming the capital gain would be more than the dividend here. also looking at what he's doing with his american companies, i feel like he might do some weird spin-offs, share issues or whatever that would trigger extra taxes too.

 

the only way i can get my taxation to a reasonable level is to hold the stocks for 10 years. if there's a lot of spin-offs etc during this time, i'll get hit hard.

[ni-co]

Has anyone heard anything (delay, cancellation, etc.) about the Liberty Global spinoff of VTR & Liberty Cablevision in Latin America? They mentioned this in March 2014 @ the Morgan Stanley TMT conference and again on the 2014Q1 conference call, but strangely no mention of it on the Q2 conference call.

 

Could be interesting. They mentioned that the company only does about $0.5 billion in EBITDA, which, on a company of $8 billion in EBITDA, isn't insignificant, but I could see it being overlooked if spun off.

 

Looks like it's going forward: http://www.sec.gov/Archives/edgar/data/1570585/000157058514000176/0001570585-14-000176-index.htm

 

Has anybody experience with options and spin-offs? I happen to own Jan'16 call options. Will I get separate calls on the spun-off company after the spin-off will have been consummated?

[wbr]

Has anyone heard anything (delay, cancellation, etc.) about the Liberty Global spinoff of VTR & Liberty Cablevision in Latin America? They mentioned this in March 2014 @ the Morgan Stanley TMT conference and again on the 2014Q1 conference call, but strangely no mention of it on the Q2 conference call.

 

Could be interesting. They mentioned that the company only does about $0.5 billion in EBITDA, which, on a company of $8 billion in EBITDA, isn't insignificant, but I could see it being overlooked if spun off.

 

Looks like it's going forward: http://www.sec.gov/Archives/edgar/data/1570585/000157058514000176/0001570585-14-000176-index.htm

 

Has anybody experience with options and spin-offs? I happen to own Jan'16 call options. Will I get separate calls on the spun-off company after the spin-off will have been consummated?

 

I think you keep your calls but the underlying will then be something like 100 shares of parent + 25 shares of spinoff per contract.

[ItsAValueTrap]

The OCC will make adjustments to it.  It is possible that the OCC will make adjustments that are not favorable to a particular side of the options contract (in rare situations).

 

If the spinoff is really, really small like MCF/CORE then the options contract may not be adjusted at all.

[ni-co]

Thanks, guys. So, essentially I have to wait until the OCC comes out and says what adjustments are going to be made.

[Liberty]

Rumors of an ITV takeover by Liberty Global:

 

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/11064518/Liberty-Global-positions-for-ITV-takeover.html

 

LIBERTY GLOBAL, the owner of Virgin Media, controlled by the American billionaire John Malone, is canvassing support from major ITV shareholders following its acquisition this summer of a 6.4pc stake, raising speculation of a full takeover bid.

 

The company is said to be aiming to strengthen its position for potential talks with the ITV board by forming alliances with the big American investors that own chunks of Britain’s biggest commercial broadcaster.

 

Large investors in ITV include Fidelity, which has a nearly 8pc stake, BlackRock, with 4.9pc, and the Californian fund manager Brandes, which has 4.8pc.

 

City sources said Liberty, which bought its stake from BSkyB in July for £481m, is likely to be aiming for support for a potential bid at a price that would not put too large a premium on ITV shares. They are trading at 210p, their highest since the dotcom crash, valuing the company at more than £8.4bn. Five years ago ITV shares were under 50 pence.

 

http://www.ft.com/intl/cms/s/0/4c51bc96-31f7-11e4-a19b-00144feabdc0.html#axzz3CAesKj7t

 

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/4c51bc96-31f7-11e4-a19b-00144feabdc0.html#ixzz3CAfEFs46

 

Another revival of takeover speculation pushed ITV to a record high on Monday.

The shares rose 3.6 per cent to 218.7p on reports that Liberty Global, its 6.4 per cent shareholder, has been sounding out ITV shareholders about its options.

 

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/4c51bc96-31f7-11e4-a19b-00144feabdc0.html#ixzz3CAfM4xxa

 

When it bought the stake in July, Liberty ruled out bidding for ITV for six months. However, analysts believe Liberty will move sooner to head off the threat of a bid battle.

 

“We believe the next logical step would be for Liberty to secure a blocking stake of circa 20 per cent which would allow it to determine the future of ITV,” said Merrill Lynch. Merger tax benefits alone could be worth 50p per ITV share to Liberty, with cost savings and synergies valued at a further 55p per share, it said.

[ni-co]

I wonder what's really in this deal for LBTYA. I don't understand it at all.

[Liberty]

http://www.hollywoodreporter.com/news/liberty-global-has-no-current-731387?utm_source=twitter

 

"no plans" to increase stake in ITV, "no comments" on possible Formula 1 investment with Discovery.

[Liberty]

http://www.bloomberg.com/news/2014-09-11/vodafone-ceo-says-liberty-could-be-good-fit-for-right-price-.html

 

Vodafone Group Plc (VOD) Chief Executive Officer Vittorio Colao, asked today whether John Malone’s Liberty Global Plc (LBTYA) might be a good fit for the mobile-phone company, said he would consider it “for the right price.”

 

Plus a nice little wifi partnership with Comcast:

 

https://secure.marketwatch.com/story/comcast-and-liberty-global-announce-agreement-to-connect-us-and-european-wi-fi-networks-2014-09-11

[Liberty]

Kind of hoping the Vodafone CEO comment doesn't amount to anything, at least for a long time. I want to keep Liberty Global as a long-term compounder  :P

[merkhet]

Malone has made it pretty clear that he doesn't want to sell the company... (Unless it's for a ridiculous price like with AT&T)

[ni-co]

Malone has made it pretty clear that he doesn't want to sell the company... (Unless it's for a ridiculous price like with AT&T)

 

Yes. I think you can trust Malone with this. That's the great thing about having a great capital allocator in control of your company.

[wbr]

Malone has made it pretty clear that he doesn't want to sell the company... (Unless it's for a ridiculous price like with AT&T)

 

The potential take-out premium would need to compensate long term shareholders for the "lost" compounding power. If we assume conservatively that the current FCF multiple will also be the exit multiple in 10 years and that the company will compound FCF/share at 15% per annum then VOD would need to pay the exit price of $176 ($43.67 * 1.15^10) discounted back to today with the long term market return (8%) which would imply a take-out price of $81 or a premium of 87%.

 

It's just a rough estimate, but that's how I would think about it. I need to deploy the cash from a potential sale in another asset and good coumpounders aren't easy to find so using the market return seems appropriate. Ofc 15% compounding might turn out to be conservative. Also I dont think the FCF multiple is fair right now but rather cheap, considering the compounding potential. And a market return of 8% is optimistic given the current valuation levels. Adjusting these factors would push the price even higher.

[Liberty]

http://www.libertyglobal.com/pdf/press-release/10-10-Ziggo-Regulatory-Clearance-FINAL.pdf

 

Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK) and Ziggo N.V. (“Ziggo”) today announce that Liberty Global has obtained regulatory clearance from the European Commission for the previously announced recommended public offer (the “Offer”) to all holders of issued and outstanding ordinary shares (the “Shares”) in the capital of Ziggo as more fully described in the joint press releases of Liberty Global and Ziggo of January 27, 2014 and June 27, 2014. As a result, the condition on competition clearance for completion of the Offer, as detailed in the Offer Memorandum dated June 27, 2014 (the “Offer Memorandum”) and the U.S. prospectus/offer to exchange (the “U.S. Prospectus”) dated August 19, 2014, has now been satisfied. Ziggo shareholders who wish to tender their Shares into the Offer are reminded that the acceptance period for the Offer (the “Offer Period”) expires at 17:40 hours CET (10:40 hours EST) on November 4, 2014 (the “Acceptance Closing Date”).

[Liberty]

http://www.libertyglobal.com/pdf/press-release/10-22-Announcement-Tracking-Stock-LiLAC-Group-FINAL.pdf

 

If you didn't think Malone was creating enough tracking stocks and spinoffs these days, here's a new one.

[ni-co]

http://www.libertyglobal.com/pdf/press-release/10-22-Announcement-Tracking-Stock-LiLAC-Group-FINAL.pdf

 

If you didn't think Malone was creating enough tracking stocks and spinoffs these days, here's a new one.

 

To quote Warren Buffet: "He likes to move stuff around."

[Liberty]

http://www.libertyglobal.com/pdf/press-release/LG-Earnings-Release-Q3-14-FINAL.pdf

 

 

Record Q3 Subscriber Growth of 344,000, 928,000 YTD

Rebased OCF Growth of 5% in Q3 and 6% YTD

YTD Adjusted Free Cash Flow of $1.4 Billion, Up 45%

Completed Tender Offer for Ziggo