LBTYA - Liberty Global

[scorpioncapital]

;D

 

Indeed! I remember Rick Rule who I really like to listen to when someone asked him about the safety of investing in a mine in BC Canada versus in Africa. His answer was killer. Paraphrasing but apparently the BC mine was expropriated in various sneaky ways in the 70s and 80s while the African mine ran smoothly and went on to earn a great return.

 

[Spekulatius]

FWIW, I believe the sale will be approved with some caveats. What you are seeing is that a deal like this is more complex and all the stakeholders (employees, regulators, customers etc.) have an input and will be heard. You can call it socialism (which it isn’t) but it’s just how the sausage is made.

[scorpioncapital]

It depends on what remedies and if Vodafone accepts. Perhaps Global also has a say in it, perhaps it can separate the sales package. In other countries remedies have been no price increases for a fixed period of time. Or divesting another division. Or not combining x & y. I agree there is much room for negotiation. if the commission is worried that Vodafone's mobile business will provide synergies with the cable - a big reason Vodafone wanted to buy and Global sell, then if the EU suggests dis-synergies, it might not go down too well. If it is time limited, that may be easier to swallow. If it is permanent, then Vodafone may get cold feet.

[scorpioncapital]

It seems that Vodafone does have cable ops in Germany , https://www.broadbandtvnews.com/2019/03/25/vodafone-completes-analogue-switch-off-on-german-cable/

[ander]

LONDON/BRUSSELS, April 2 (Reuters) - Vodafone(VOD) still expects to secure EU antitrust approval for its $22 billion purchase of Liberty Global's(LBTYA) assets in Germany and eastern Europe by the middle of the year, it said on Tuesday.

 

The world's second-largest mobile operator expressed its confidence after receiving the European Commission's statement of objections, which set out the watchdog's concerns about the deal.

 

Reuters reported on March 20 that the EU competition enforcer would warn the company about possible anti-competitive effects from the proposed deal. The Commission had previously voiced worries about the impact in Germany, the Czech Republic, Hungary and Romania.

 

"The Commission's statement of objections is an expected part of the review process. We will review the statement and continue our constructive dialogue with the Commission," Vodafone(VOD) said in a statement.

 

"We still expect to receive final approval in the middle of this year." (Reporting by Paul Sandle in London and Foo Yun Chee in Brussels Editing by David Goodman)

 

 

[ander]

I have followed the company for a few years and have been a shareholder since last year. I spent the past couple of weeks re-doing my research on the company. I continue to like it and believe there is substantial upside, but I'd like to get feedback or be challenged or debate certain topics related to the company. It is of course not the most straightforward given the number of markets they are involved in - and maybe that's partially why the opportunity exists.

 

CapEx: the company uses OFCF which takes out the full amount of capex, but there are some puts and takes. IR has said maybe maintenance capex is 20-40%. They also look at % of revenue for capex spent. What do you assume is maintenance capex? What is the respective growth if you are excluding growth capex? What do you define as growth capex - passing new homes, upgrading the infrastructure (is upgrading growth capex or just maintenance)? Do you adjust your growth numbers downward? I am trying to get to a run-rate FCF number. They tout EV / OCF since that is what the market has done.

 

Project Lightning: Q4 '18 call they gave us a breakout of Project Lightning versus Rest of Business which is how they look at it internally and we can calculate what the Rate of Return on Capital for Lightning should be which is substantially above cost of capital. That's great and when fully up and running that could be additional $500 million or $600 million of OCF. But that would be incremental OCF of 25% or so to Virgin Media. What rate of return on capital are you calculating for Lightning?

 

Questions for thought (I don't expect any concrete answers): What do you think the end-game is here for Malone / Fries to realize the value (private market seems to value the assets substantially higher - likely because of synergies as well)? To exit Europe completely eventually with a sale - he hates paying taxes, so maybe some kind of tax efficient merger with Sky (Comcast) if that's allowed? Will he first finish Project Lightning? Maybe buy a UK MVNO?

[scorpioncapital]

I hope whatever they do, it will not be in the cable business unless it's in a strong relatively unregulated jurisdiction. Hard to find anywhere. An intelligent investor is one that can reallocate capital in new areas , not always what it did before.

[ander]

I hope whatever they do, it will not be in the cable business unless it's in a strong relatively unregulated jurisdiction. Hard to find anywhere. An intelligent investor is one that can reallocate capital in new areas , not always what it did before.

 

I would assign low odds to anything that's substantial in size outside of the cable business or related areas.

[WayWardCloud]

The original plan for Global was to capitalize on the growing integration of European countries which was back then thought as ineluctable.

Step 1 : They would buy cable systems here and there and get to compete with inefficient former state monopolies with an inferior product (copper), overweight complacent bureaucratic managements and paying a high dividend (because the country is often still a major shareholder and demands it).

Step 2 : Eventually unify them all together and crush competition through their sheer scale, quickly acquiring the dozens of sub-scale regional systems left around, once something like the United States of Europe would form.

They basically tried to replicate the US cable system history.

 

What actually happened

- It proved harder than expected to succeed operationally because management from incubants acted irrationally and started a race to the bottom. Mike Fries also couldn't handle it all at the same time / didn't hire the right managers and several businesses turned into a operational nightmare (Romania, Netherlands, Switzerland).

- M&A and fair competition have often been blocked by the country/the EU commission (Germany, Poland).

- Some countries even forced cable to wholesale its bandwidth (Belgium).

- Thankfully their M&A excellence (buy low, sell high, take advantage of public/private markets differences) and a couple of successful "flips" (Germany) have allowed them to achieve pretty satisfying returns overall despise all of those headwinds.

 

And at a macro level

Europeans didn't pursue more integration. Instead, a bad economic downturn and fear of uncontrolled immigration is leading them to vote more and more for populist nationalist parties.

Malone and co are of course Fox "News" people. So just listen to the description of Europe that's being spread on there for 5 minutes : one big communist war zone invaded by Muslim terrorists.

So of course they're backtracking like crazy.

(Not saying they're necessarily wrong to do so, I do think there's more pain ahead and the disintegration is likely to happen and to hurt)

 

Virgin in the UK

Their only fully owned business.

Around 60% of the value post-transaction

 

Not part of the Euro currency. Plus getting out first is probably the best move if you believe the collapse of the Union is inevitable.

They keep investing in new builds although the pace is sluggish, this makes me believe they're here to stay.

 

Plus Malone has developed a fondness for Ireland in his old age. He's of Irish descent and he's been buying several palaces and golf courses there. Knowing the guy, I wouldn't be surprised if there was not a tax implication there too. He could become Irish, renounce US citizenship and dodge the estate tax for his family when he dies. He highly regards Murdoch and he's praised the way he simplified his business by selling to Disney before passing it on to his children in one last buyout at a very high price plus taking stocks to avoid taxation.

 

I am pretty bullish on Virgin. They have much higher speeds and offer them at a slightly lower price than their only at-scale competition, BT. Plus the new German guy running it is super annoying (he reminds me of T-Mobile's CEO) but he seems good at what he does (Germany has been LBTYA's single best return on investment).

 

Telenet in Belgium

Literally the capital of the European Union (well, Bruxelles).

Around 20% of the value post-transaction.

 

They recently forced them to wholesale bandwidth.

Malone's reaction: revenues trends slightly down and cash flows are extremely high: they're not investing another euro in the business, just milking it to a slow death.

 

They only own 60% and the rest of Telenet is trading publicly at a very low EV/EBITDA valuation. The fact that they don't buy out the rest is telling. I think they're stuck here. Usually they'd try to do a private deal but i'd be hard to convince a buyer to pay >10XEbitda given the low trading valuation of the 40% they don't own. I don't know how they're going to do it but I'm sure they want out of there.

 

Vodafone-Ziggo in the Netherlands

Kind of a blackbox.

Rich country with low debt that should do OK in the event of a Union collapse or a new 2012-like debt crisis, so less rush to get out.

Around 20% of the value post-transaction.

 

The Netherlands business started as one of the operational nightmares described above but they seem to have stopped the hemorrhage with the merger. I think one company eventually buys out the other one's 50% but it's going to be complicated because Vodafone is already taking on a huge amount of debt to buy out Germany++ and they might not even be able to pay up for one more. My guess is Liberty plays a game of "I can wait forever" while Vodafone struggles with their balance sheet until they finally get desperate enough to sell their half to Liberty at a low price.

 

What will they do with the money?

My guess is nothing. Just pay down debt and buy back shares. This is Malone doing a beautiful deleveraging/descaling of a failed business attempt (unify European cable).

[Spekulatius]

^ Pretty good  summary from Waywardcloud. Once you look around it is clear that the telecom industry economics in the US a better than almost anywhere else in the world. That’s why Malone can’t duplicate anywhere else what he has done in the US. Just look at LILA, which is worse than LBTYA.

[ander]

WayWordCloud - thx for the response.

 

--Do you think that LBTYA might buy O2 UK from Telefonica? (I believe you mentioned that last year).

--Any thoughts on capex detail or FCF?

 

It will be interesting to see where the stock is in the coming quarters post-close of transaction and they resume share buybacks.

 

[ander]

BRUSSELS, May 24 (Reuters) - EU antitrust regulators have extended by two weeks to July 23 their investigation into Vodafone's(VOD)$22 billion bid for Liberty Global's(LBTYA) cable networks in Germany and central Europe, according to a filing on the European Commission website.

 

The EU competition enforcer decline to comment on the reason for the extension. Vodafone(VOD), the world's second-largest mobile operator said discussions with the Commission were ongoing.

 

Earlier this month, Vodafone(VOD) offered to grant rival Telefonica Deutschland access to its enlarged high-speed broadband network to allay competition concerns about the deal..

 

However, rivals and customers have provided negative feedback to the Commission, suggesting Vodafone(VOD) may need to improve its proposal in order to win regulatory approval for the deal, sources said. (Reporting by Foo Yun Chee, editing by Louise Heavens)

 

[scorpioncapital]

Is the issue that Vodafone has a business that would add more power with liberty's business? I mean if coca cola bought the asset would there be any issues ? (Not that they would )

[ander]

Any thoughts on whether this is more positive or negative? On one hand, easier and cheaper for lbtya to expand. On the other hand, it’s cheaper and easier for competitors to expand than it was previously - so more competition for lbtya. Also all of the connections that lbtya has laid down directly are worth less now because could have piggybacked off of Openreach (British Telecom).

 

More people getting better broadband thanks to Ofcom rules

24 May 2019

Ultrafast broadband can be five times more reliable than older, standard broadband, and fast enough to allow lots of people in the same home to stream films in ultra-high definition at the same time, or make seamless video calls.

 

Thousands of homes and businesses now have access to this technology thanks to Ofcom rules designed to make it easier and more affordable to roll out better broadband networks.

 

Last year we set new rules to support investment in fibre networks. Under these rules, Openreach, which maintains the UK’s main broadband network, must let rival companies use its telegraph poles and underground ducts to lay their own fibre cables to residential customers. This access can cut the upfront cost of building full-fibre networks by around half.

 

Several firms – including Virgin Media, TalkTalk and CityFibre – are using these rules to connect thousands of homes and businesses to faster, more reliable broadband.

 

For example, Virgin Media rolled out full fibre in Pontyclun, Wales, by using Openreach’s ducts. This follows a trial last year in Lincolnshire, where Virgin Media used an Openreach duct to cut the amount of time and money it took lay its cables.

 

Meanwhile, TalkTalk has been trialling the use of ducts and poles as it seeks to roll out full fibre to three million premises by 2025. Between them, competing providers are using around 12,000 Openreach telegraph poles and 2,500 km of underground duct.

 

More people across the UK are set to benefit from Ofcom’s rules. Broadband provider toob recently secured funding for a full-fibre rollout programme, and expects to use Openreach’s infrastructure to achieve this.

 

Hyperoptic also has plans to use them as it rolls out over 5,000 km of fibre in order to reach five million premises by 2025, while providers Glide and NextGen Access have used them as part of their full-fibre rollout.

 

Ofcom has been looking at ways we could further improve access to Openreach’s infrastructure, to help strengthen the business case for companies laying new fibre cables. Today, we have announced a package of measures that would give these companies greater flexibility when building their networks.

 

In future, our measures would mean that they will be able to use Openreach’s ducts and poles for a wider variety of business cases, increasing the scope for them to invest in cutting-edge, ultrafast broadband.

 

Alan Bristow, Build Director for South of England and South Wales at Virgin Media, said: “We will consider using their ducts again so that more areas of the UK get a much-deserved broadband boost from Virgin Media.”

 

Jonathan Oxley, Ofcom’s Competition Group Director, said: “The amount of internet data used by people in the UK is expanding by around half every year. So, we’ll need faster, more reliable connections to our homes and offices.

 

“Our measures are designed to support the UK’s digital future by providing investment certainty for continued competitive investment in fibre and 5G networks across the country.”

 

 

[Munger_Disciple]

I  don't understand Virgin Media's advantage in UK over competition if anyone has access to the conduit where they can put their own fiber. If the Vodaphone deal goes through, Liberty Global will mainly be a UK based cable company.

[WayWardCloud]

WayWordCloud - thx for the response.

 

--Do you think that LBTYA might buy O2 UK from Telefonica? (I believe you mentioned that last year).

--Any thoughts on capex detail or FCF?

 

It will be interesting to see where the stock is in the coming quarters post-close of transaction and they resume share buybacks.

 

Obviously pure speculation, but since you ask...

I expect Virgin to finally follow the "new cable playbook", a.k.a. Charter's method.

 

Rutledge essentially took Malone's old cable playbook and added the twist of actually caring about the consumer's happiness because investing in it leads to better growth, not so much through extra new adds but through reducing churn. It turns out this method over the long run actually pays better than milking every cent out of the trapped consumers while doing the least amount of effort possible (which is why cable providers used to be so hated by Americans).

 

Mike Fries is super competitive. I recall him mentioning Charter out of the blue during a couple calls and saying they're doing just as good even though nobody asked. Remember all those people seat at common board meetings and Malone is playing King Solomon in the middle deciding which one of the brothers are good boys. For example, he publicly congratulated Maffei on structuring the Formula One deal "in such a smart way" who won against Fries who was competing to buy it. So the pressure is there.

 

Up until a year or two ago, during every call, Fries would ONLY talk numbers, maybe because he had so many different businesses under LBTYA. He seemed completely disconnected from the ground operations, which is probably what led to failures such as Switzerland: it took them to be losing market share insanely fast to finally come up with a big plan to : bring 1Gig, bring an actually unlimited MVNO service, bring 4k boxes, add expensive exclusive sports content. Anyone could have told you those things were needed years ago. They took their customers for granted and fell asleep at the wheel. The limits of the old cable method showed so strongly with Switzerland because obviously their customers are rich so price is less of a differentiating factor, they need to be delighted, not given something good enough, but I believe the same can happen anywhere in Europe because there is usually much more overbuild (aka a choice between providers) than in the US.

 

For a while now, around when LILA got spinned I think, I've noticed him sounding more and more like other cable CEOs and emphasizing the customer. What new box they where getting, how good the WIFI signal was, could they easily access Netflix, Amazon Prime, etc. They chose Balan Nair to lead LILA, the Chief Technology Officer, not the COO, not a CEO of one of the countries, someone whose job was literally the customer's experience (the terminal box). They now just kicked the head of Virgin out and replaced him with Lutz Schuller from Germany who sounds like he's on Rutledge's "new playbook" 100%. Virgin has a better network than BT they should be crushing them and so far they are not which is such a waste. It's like if Charter was keeping its speeds low and its customer service terrible in houses where they compete with ATT instead of utilizing their superior product to offer things that copper just can't replicate. Stupid. Remember maybe 6 months ago when Virgin recognized a small additional loss and they explained it was due to them not charging anymore some customers an extra $2 per month for using a debit/credit card to pay online?! That was insane and a real eye opener to me. Fries had been following the "old" cable playbook and treating his clients like shit squeezing maximum EBITDA each quarter instead of thinking long term.

 

So long story short: I expect Virgin to start treating its customers well and push the speeds to 1Gig with great set top boxes while keeping their MVNO the way it is. As long as it's top notch for the customer (it seems like there's no restrictions) they are in no hurry to buy O2 or anybody else (just like Charter with Verizon). Even though Fries has guided for decreased capex and increased FCF at Virgin I actually see them as only in the 4th or 5th inning of their network upgrade and on top of it doing new builds through Lightning so I don't know how a substantial decline in intensity could happen for the next 3 or so years. Which is fine. Look at the chart price for Charter during their integration phase.

 

 

 

[vince]

WayWordCloud - thx for the response.

 

--Do you think that LBTYA might buy O2 UK from Telefonica? (I believe you mentioned that last year).

--Any thoughts on capex detail or FCF?

 

It will be interesting to see where the stock is in the coming quarters post-close of transaction and they resume share buybacks.

 

Obviously pure speculation, but since you ask...

I expect Virgin to finally follow the "new cable playbook", a.k.a. Charter's method.

 

Rutledge essentially took Malone's old cable playbook and added the twist of actually caring about the consumer's happiness because investing in it leads to better growth, not so much through extra new adds but through reducing churn. It turns out this method over the long run actually pays better than milking every cent out of the trapped consumers while doing the least amount of effort possible (which is why cable providers used to be so hated by Americans).

 

Mike Fries is super competitive. I recall him mentioning Charter out of the blue during a couple calls and saying they're doing just as good even though nobody asked. Remember all those people seat at common board meetings and Malone is playing King Solomon in the middle deciding which one of the brothers are good boys. For example, he publicly congratulated Maffei on structuring the Formula One deal "in such a smart way" he won against Fries who was competing to buy it. So the pressure is there.

 

Up until a year or two ago, during every call, Fries would ONLY talk numbers, maybe because he had so many different businesses under LBTYA. He seemed completely disconnected from the ground operations, which is probably what led to failures such as Switzerland: it took them to be losing market share insanely fast to finally come up with a big plan to : bring 1Gig, bring an actually unlimited MVNO service, bring 4k boxes, add expensive exclusive sports content. Anyone could have told you those things were needed years ago. They took their customers for granted and fell asleep at the wheel. The limits of the old cable method showed so strongly with Switzerland because obviously their customers are rich so price is less of a differentiating factor, they need to be delighted, not given something good enough, but I believe the same can happen anywhere in Europe because there is usually much more overbuild (aka a choice between providers) than in the US.

 

For a while now, around when LILA got spinned I think, I've noticed him sounding more and more like other cable CEOs and emphasizing the customer. What new box they where getting, how good the WIFI signal was, could they easily access Netflix, Amazon Prime, etc. They chose Balan Nair to lead LILA, the Chief Technology Officer, not the COO, not a CEO of one of the countries, someone whose job was literally the customer's experience (the terminal box). They now just kicked the head of Virgin out and replaced him with Lutz Schuller from Germany who sounds like he's on Rutledge's "new playbook" 100%. Virgin has a better network than BT they should be crushing them and so far they are not which is such a waste. It's like if Charter was keeping its speeds low and its customer service terrible in houses where they compete with ATT instead of utilizing their superior product to offer things that copper just can't replicate. Stupid. Remember maybe 6 months ago when Virgin recognized a small additional loss and they explained it was due to them not charging anymore some customers an extra $2 per month for using a debit/credit card to pay online?! That was insane and a real eye opener to me. Fries had been following the "old" cable playbook and treating his clients like shit squeezing maximum EBITDA each quarter instead of thinking long term.

 

So long story short: I expect Virgin to start treating its customers well and push the speeds to 1Gig with great set top boxes while keeping their MVNO the way it is. As long as it's top notch for the customer (it seems like there's no restrictions) they are in no hurry to buy O2 or anybody else (just like Charter with Verizon). Even though Fries has guided for decreased capex and increased FCF at Virgin I actually see them as only in the 4th or 5th inning of their network upgrade and on top of it doing new builds through Lightning so I don't know how a substantial decline in intensity could happen for the next 3 or so years. Which is fine. Look at the chart price for Charter during their integration phase.

 

Great post....Fries absolutely screwed it up.  Just look at how far behind they are in their commercial business relative to their American peers, it's embarrassing!!!

[rogermunibond]

https://www.sec.gov/Archives/edgar/data/912958/000114420419029487/tv520778-f1.htm

 

Millicom files for offering as the Swedish investment group Kinnevik exits

[Foreign Tuffett]

https://www.sec.gov/Archives/edgar/data/912958/000114420419029487/tv520778-f1.htm

 

Millicom files for offering as the Swedish investment group Kinnevik exits

 

That's much more relevant to Liberty Latin America than it is to Liberty Global.

[Value92]

No question this assets is worth much more than what it is selling for in today’s market.

 

My issue with Malone is that he might be screwing minority shareholders. I still haven’t finished looking at possible questionable transactions. So far I have the the 1st Liberty Media Split, the UGC transaction in 2005 and the C&W deal. Are there other deals I should look at?

 

To be honest Malone reminds me much more of Henry Singelton than WEB does. He is extremely rational and will take advantage of any market opportunity there is. Does anybody know if WEB ever invested with Singelton? This might help determine if Malone entities are investable for me (if you can trust him, I don’t want him as my partner).

[John Hjorth]

Value92,

 

Recently Nicke posted this.

[skanjete]

https://finance.yahoo.com/news/eu-regulators-clear-vodafones-liberty-161331416.html

[cameronfen]

https://finance.yahoo.com/news/eu-regulators-clear-vodafones-liberty-161331416.html

I didn't want to really discuss this while I was buying but I doubt most of us will not move the market.  Is this not easy money if this goes through?  Thoughts on accumulating some before the official announcement and buying more/selling when/if it is confirmed? 

[WayWardCloud]

I mostly agree with you Cameron.

As a mitigant, the Switzerland deal seems less certain than the Vodafone one because some shareholders of Sunrise might still oppose it and if that does happen then Liberty has one more big challenge to fix.

Also Brexit.

Also their debt has ballooned to well over 5X EBITDA.

 

It's honestly a poorly managed company that's doing a brilliant escape + deleveraging thanks to the huge discrepancy between the private and public value of their assets. If it all works out, and I believe it's likely to, the numbers are obviously great no matter how you slice it. But I also understand why lots of people are staying on the side and I don't think of it as a "no-brainer".

 

(LBTYA is about 8% of my portfolio)

 

 

[cameronfen]

I mostly agree with you Cameron.

As a mitigant, the Switzerland deal seems less certain than the Vodafone one because some shareholders of Sunrise might still oppose it and if that does happen then Liberty has one more big challenge to fix.

Also Brexit.

Also their debt has ballooned to well over 5X EBITDA.

 

It's honestly a poorly managed company that's doing a brilliant escape + deleveraging thanks to the huge discrepancy between the private and public value of their assets. If it all works out, and I believe it's likely to, the numbers are obviously great no matter how you slice it. But I also understand why lots of people are staying on the side and I don't think of it as a "no-brainer".

 

(LBTYA is about 8% of my portfolio)

 

Sure that's good to know.  If the Vodafone deal goes through net debt will be way below 5X Ebitda.  If for some reason Reuters is wrong, I'm likely to sell anyways.