LBTYA - Liberty Global

[maybe4less]

Barrons article on Malone holdings today includes interview from him. Note the following on LBTYK:

 

“The market is skeptical that the deal will close and cautious about what the company will do with the cash if it closes,” Malone says. “Would I buy the stock here? Probably not. If the deal closes, Liberty Global is very cheap. If not, it’s appropriately priced.” Malone thinks the market is too cautious on regulatory approval. He puts an 80% chance of approval.

 

He sounds a little bit more skeptical of approval than I thought (especially if he’s saying 80% publicly my guess is that he really thinks likelihood of approval to be lower).

 

I guess another question would be if the deal falls apart how does the entity unlock value going forward.

 

Seems more sceptical than I would think. Appropriately priced when the deal doesn’t go through isn’t the consensus here. But then again, we have almost 5x EBITDA/EV leverage and the last quarterly results were nothing to write home about (as usual). I do think it’s cheap, but I also think the chance that the deal does not go though is a bit higher than the consensus here.

 

I'd take the "probably wouldn't buy" comment with a grain of salt.  I wouldn't expect John Malone, knowing there is a high chance LBTYK will be deploying $10-12 billion in buybacks on a sub $20 billion market cap in the near future, to do anything but talk down the value of the stock.

 

Yeah sounds like he wants to buyback a ton of stock.

[vince]

  I dont see the relationship between what he said and his motivation for keeping the stock price down.  If the deal goes through, people are gonna buy the stock, and he is telling them its really cheap if the deal goes through.  How is he going to benefit?  You mean he is talking the stock down now? But he isnt buying any, and lbtya isnt buying an unusual amount.  Why in gods name do they not just do a forward purchase or whatever to get as much stock now, and pay for it later?  And please note that when Malone says he wouldnt buy it, he has a very different return threshold than most other investors....I wouldn't touch it either if I were him

[cmlber]

  I dont see the relationship between what he said and his motivation for keeping the stock price down.  If the deal goes through, people are gonna buy the stock, and he is telling them its really cheap if the deal goes through.  How is he going to benefit?  You mean he is talking the stock down now? But he isnt buying any, and lbtya isnt buying an unusual amount.  Why in gods name do they not just do a forward purchase or whatever to get as much stock now, and pay for it later?  And please note that when Malone says he wouldnt buy it, he has a very different return threshold than most other investors....I wouldn't touch it either if I were him

 

“In terms of what we may or may not do going forward on buybacks, I’m not going to mention anything here. You correctly point out there’s lots of tools, there’s lots of opportunities to look at it.

Suffice it to say you should expect, since we’re some of the more sophisticated players in that space, that we are looking at all things.”

 

Wouldn’t be surprised to see them buy back more aggressively before the deal closes.  And still a year until deal closes, so even the usual $2-2.5B pace is a huge chunk of the equity.

[ander]

I’d actually be surprised if they did move more aggressively re: share buybacks before the deal closes unless the odds change dramatically for deal closure (for example, maybe during the time period between approval and closure). And I would expect the stock pops like 10% or something on deal approval which would still be an insanely attractive price level to do buybacks.

[maybe4less]

I’d actually be surprised if they did move more aggressively re: share buybacks before the deal closes unless the odds change dramatically for deal closure (for example, maybe during the time period between approval and closure). And I would expect the stock pops like 10% or something on deal approval which would still be an insanely attractive price level to do buybacks.

 

Exactly. Malone absolutely wants the price near its current levels when the deal closes.

[scorpioncapital]

Think of the deal as a deleveraging. If they don't buy back the debt, then the funds are not deleveraging the remaining debt. As rates rise, and you have less business, clearly what the CEO was saying at the call makes sense. Wait and see. If debt cost goes too high they'll deleverage, if it doesn't, well wreckless as it may be to continue to leverage up it may benefit the shareholders converting equity to debt. A slow leveraged buyout. Alot will depend on rates and business results.

[walkie518]

80% is certainly a fungible number and my thought was the probability of closing was higher

 

from another view, the 20% difference might feel like 50% and it could be that investors misjudge to the downside

 

that said, if the sale is blocked, the stock might go up b/c liberty keeps some really nice assets...if the sale goes through, nearly $12B goes to buyback as we watch Switzerland (hopefully) turn the corner

 

net-net, at these levels, I don't see why owning more isn't a good idea?

[ander]

80% is certainly a fungible number and my thought was the probability of closing was higher

 

from another view, the 20% difference might feel like 50% and it could be that investors misjudge to the downside

 

that said, if the sale is blocked, the stock might go up b/c liberty keeps some really nice assets...if the sale goes through, nearly $12B goes to buyback as we watch Switzerland (hopefully) turn the corner

 

net-net, at these levels, I don't see why owning more isn't a good idea?

 

I agree and at these levels I continue to top-up my position. It's just that my approach is conservative and assume the worse case (i.e., deal not closing) - in that case I still see upside at these price levels.

[bigbluffzinc]

Does anyone know (done any correlation work with other UK businesses) how much of this is Brexit?  I know it's been mentioned before but don't think there was much of a response.  Sterling has held up pretty well while LBTYK has taken it on the chin & I don't see this business as particularly vulnerable (particularly with the optionality if the deal closes) to a deteriorating domestic situation in the UK but I can't really see material business deterioration ex-Brexit either.  I initiated at $26-$27 and have been adding but I don't want to miss something obvious either... 

 

Obviously funds betting on a bigger VOD deal/buyout/speculating if Brian missed Sky he may do something with LBTYK are going to have to unwind & that can bring the opportunity.  But given the magnitude of the decline I'm concerned I've missed something...  After re-reading the 10Q's/transcripts I don't see what & would love (hate...) to have someone point out the magnitude of Brexit/etc & why this is a disaster.  I know Howard Marks said levels in the UK are still too high to make anything (debt) investable but I don't have any numbers.  :( 

 

I am actually on the other side of just about everyone on this forum and think Fries is an "ok" and relatively transparent CEO.  I think Belgium and Switzerland really are tough markets but I think he's done a decent job of exiting/partnering to build scale when he's disadvantaged and working out solutions & Virgin Media is a slam dunk. 

 

I agree that he's sold the companies best asset but I do think he got a reasonable price for it and I don't think the rest of the company was/is being valued appropriately and it's reasonable to assume selling at a fair price to arbitrage the value gap between public/private is an "ok" strategy.  I'm probably too cynical but I'm skeptical about whether people would think so poorly of him if the stock price was $37-$40 USD with no fundamental change to the business... 

[vince]

Does anyone know (done any correlation work with other UK businesses) how much of this is Brexit?  I know it's been mentioned before but don't think there was much of a response.  Sterling has held up pretty well while LBTYK has taken it on the chin & I don't see this business as particularly vulnerable (particularly with the optionality if the deal closes) to a deteriorating domestic situation in the UK but I can't really see material business deterioration ex-Brexit either.  I initiated at $26-$27 and have been adding but I don't want to miss something obvious either... 

 

Obviously funds betting on a bigger VOD deal/buyout/speculating if Brian missed Sky he may do something with LBTYK are going to have to unwind & that can bring the opportunity.  But given the magnitude of the decline I'm concerned I've missed something...  After re-reading the 10Q's/transcripts I don't see what & would love (hate...) to have someone point out the magnitude of Brexit/etc & why this is a disaster.  I know Howard Marks said levels in the UK are still too high to make anything (debt) investable but I don't have any numbers.  :( 

 

I am actually on the other side of just about everyone on this forum and think Fries is an "ok" and relatively transparent CEO.  I think Belgium and Switzerland really are tough markets but I think he's done a decent job of exiting/partnering to build scale when he's disadvantaged and working out solutions & Virgin Media is a slam dunk. 

 

I agree that he's sold the companies best asset but I do think he got a reasonable price for it and I don't think the rest of the company was/is being valued appropriately and it's reasonable to assume selling at a fair price to arbitrage the value gap between public/private is an "ok" strategy.  I'm probably too cynical but I'm skeptical about whether people would think so poorly of him if the stock price was $37-$40 USD with no fundamental change to the business...

 

I should have been clearer when I was criticizing Fries.....he/they have done a great job buying/selling/arbitraging/buybacks, no question, but his execution with operations has been atrocious, especially if you compare to a well run cable operation.  His propensity to brag and his overconfidence in aggressive targets that he made a couple years ago have come back to bite him hard.  The stock would not have fallen this far if investors didn't lose trust in him...you can tell he's just deceiving/full of shit when he talks, constantly overhyping potential positives and completely glossing over any negatives, constantly spinning nonsense.  Look at his results on their commercial business, how late he was to identify that as a huge opportunity.  Always putting down his American peers, or trying to justify their underperformance against say Chtr, even when nobody asked specifically about that. I mean the company has grown rebased cash flows every qtr for a decade (this is more because of the advantaged assets rather than mgmt execution and would have grown faster with say Rutledge running things imo) and the stock is selling like its going under (which by itself does not bother me, have owned it for 5 years and I am in the negative).....and mgmt is a big reason.  He overpromised and underdelivered, and that is a big problem for a public company, nobody can argue against that last point, it's a fact.

[bigbluffzinc]

Yeah ok fair enough.  I don't disagree with anything you said.  :)

 

Klarman picked up a 3.5% position or so this last quarter.  Not a big deal but good news nonetheless. 

[Spekulatius]

Does anyone know (done any correlation work with other UK businesses) how much of this is Brexit?  I know it's been mentioned before but don't think there was much of a response.  Sterling has held up pretty well while LBTYK has taken it on the chin & I don't see this business as particularly vulnerable (particularly with the optionality if the deal closes) to a deteriorating domestic situation in the UK but I can't really see material business deterioration ex-Brexit either.  I initiated at $26-$27 and have been adding but I don't want to miss something obvious either... 

 

Obviously funds betting on a bigger VOD deal/buyout/speculating if Brian missed Sky he may do something with LBTYK are going to have to unwind & that can bring the opportunity.  But given the magnitude of the decline I'm concerned I've missed something...  After re-reading the 10Q's/transcripts I don't see what & would love (hate...) to have someone point out the magnitude of Brexit/etc & why this is a disaster.  I know Howard Marks said levels in the UK are still too high to make anything (debt) investable but I don't have any numbers.  :( 

 

I am actually on the other side of just about everyone on this forum and think Fries is an "ok" and relatively transparent CEO.  I think Belgium and Switzerland really are tough markets but I think he's done a decent job of exiting/partnering to build scale when he's disadvantaged and working out solutions & Virgin Media is a slam dunk. 

 

I agree that he's sold the companies best asset but I do think he got a reasonable price for it and I don't think the rest of the company was/is being valued appropriately and it's reasonable to assume selling at a fair price to arbitrage the value gap between public/private is an "ok" strategy.  I'm probably too cynical but I'm skeptical about whether people would think so poorly of him if the stock price was $37-$40 USD with no fundamental change to the business...

 

I should have been clearer when I was criticizing Fries.....he/they have done a great job buying/selling/arbitraging/buybacks, no question, but his execution with operations has been atrocious, especially if you compare to a well run cable operation.  His propensity to brag and his overconfidence in aggressive targets that he made a couple years ago have come back to bite him hard.  The stock would not have fallen this far if investors didn't lose trust in him...you can tell he's just deceiving/full of shit when he talks, constantly overhyping potential positives and completely glossing over any negatives, constantly spinning nonsense.  Look at his results on their commercial business, how late he was to identify that as a huge opportunity.  Always putting down his American peers, or trying to justify their underperformance against say Chtr, even when nobody asked specifically about that. I mean the company has grown rebased cash flows every qtr for a decade (this is more because of the advantaged assets rather than mgmt execution and would have grown faster with say Rutledge running things imo) and the stock is selling like its going under (which by itself does not bother me, have owned it for 5 years and I am in the negative).....and mgmt is a big reason.  He overpromised and underdelivered, and that is a big problem for a public company, nobody can argue against that last point, it's a fact.

 

Yes, that’s it in a nutshell. I also believe that running a cable business in Europe is much harder than in the US - the economics are just not as good, because pricing is lower.

[rogermunibond]

Spek it's funny because that's exactly the reason that Fries et al. gave as the opportunity many years ago.

[Spekulatius]

Spek it's funny because that's exactly the reason that Fries et al. gave as the opportunity many years ago.

 

I know this, but here we are a few years later and the situation is still the same. No surprise, since you can watch satellite TV for free in Europe. I think Broadband internet, which is still lacking in many regions, is there best shot. The national telecoms however are willing to hit hard on pricing before  conceding market share.

[ander]

CNBC full interview w/ Malone - at 27:30 Malone goes into detail re: thoughts on Liberty Global / Europe

 

https://www.cnbc.com/video/2018/11/14/watch-cnbcs-full-exclusive-interview-with-liberty-media-chairman-john-malone.html

 

 

[vince]

Yeah ok fair enough.  I don't disagree with anything you said.  :)

 

Klarman picked up a 3.5% position or so this last quarter.  Not a big deal but good news nonetheless.

 

Are you accounting for a's and k's in Klarmans purchases of liberty global?

[vince]

Nevermind, I got it

[vince]

Lbtya shares outstanding as of October 31st are down to roughly 755 million

[WayWardCloud]

It seems about right. I have them at 754 million as of September 30th in the Q3 10-k

 

            shares  %

2017 q3 832   

        q4 821    -1.32

2018 q1 798    -2.80

        q2 770    -3.51

        q3 754    -2.08

 

annualized rhythm: -9.71%

[vince]

Lots of good info in liberty globals latest presentation at ubs....lots of good questions for sure.  We will see soon enough whether Fries is really full shit or only half full.

[scorpioncapital]

Looks like we've breached the 20 bucks barrier.

Is EU review to cash out part of their business in q1 or q2?

I also wonder if their funding is in euros or pounds, both of which carry significantly lower interest expense than us dollars.

[undervalued]

I wonder why this keeps sinking. Is the market pricing the deal will not go through? How does one calculate the percentage chance of the deal will go through or not?

[ander]

The timeline for EU review is mid-2019. Below is from the press release on 12/11/18 quoting Mike Fries. My guess is things weighing down the stock include Brexit fears, deal closing uncertainty, maybe some questions related to positioning in a 5G world. In terms of probability of closing, I think at this point it's substantially undervalued even if the deal does not close.

 

"This is welcome and expected news from the European Commission. We always anticipated a second phase review given the size and scope of the transaction, and it is clear that the EU is retaining regulatory authority over the case. This provides us with the appropriate forum to demonstrate the consumer benefits that will be delivered by the creation of fully converged, fixed-mobile operators in these four markets. We look forward to engaging with the Commission and continue to expect approval mid-2019.”

[dwy000]

Wonder if it's more related to Brexit uncertainty and the impact on the UK economy given post-deal the Virgin business will be the majority of cash flow.

[scorpioncapital]

Presumably they can jack up prices if currency is devalued. It seems pretty sticky to supply internet bandwidth whatever happens.