LBTYA - Liberty Global

[WayWardCloud]

If both transactions go through and if all the money goes to debt repayment I have what's left over trading at an EV/EBITDA of 6.43 with a debt/EBITDA of 3.32.

I fully expect them to maintain a bit of a higher leverage and commit some of the cash to share repurchase but I don't know just how much.

[scorpioncapital]

15.5 percent yield on a low leverage , almost single asset utility like stock is not bad at all, with pricing power. Cable has been able to raise prices equal to or greater than inflation. Long term, 5g is a dangerous potential competitor but it's not anything to rush getting worried about yet.

[ander]

https://www.express.co.uk/life-style/science-technology/1147462/Virgin-Media-price-rise-bill-increase-2019-broadband-TV-phone

 

LBTYK raises prices in the UK.

Also check out the new technology they are trying.

[skanjete]

It's official :

https://www.reuters.com/article/us-liberty-global-m-a-vodafone-group-eu/vodafone-wins-eu-approval-for-liberty-global-deal-idUSKCN1UD114

 

 

Let's see what Fries intends to do with the money.

First thing should be a serious buy back I think.

[scorpioncapital]

First think stop losing money on lightning in UK.

Second, 25-25 buyback and debt payback.

50% left for acquisitions.

However if they think something good will come along in the LBTYA parent vehicle then I would remove the 25% debt payback unless interest rates begin to ratchet up which doesn't seem yet the case.

I would not buyback too much shares because remember, investment is laying out capital today to earn more money tomorrow.

If you return the money, you will just need to raise it again if you want to invest in a new investment or business.

However if it alot below cash valuation of the shares then it would make sense to buy some back.

Money used to buyback shares is gone forever unless you do an equity raise and you see how those tend to crash stock prices. Better keep a good chunk of the cash.

[skanjete]

A good buy back programme if executed well should not be considered as a return of capital.

 

In my opinion it should be considered an investment. Anything you can buy at a price that's lower than it's value, is a good investment.

 

LBTYA's share price is clearly a lot lower than it's value now. Let's say a discount of 40-50%. Moreover, each share they buy at current prices creates value for the remaining shares and grows the value-price discount. And this at very low risk.

 

I think they'll have a hard time now finding other investments with the same IRR and risk level, so the logical use of the money should be 1) paying back some debt en 2) buying back all the shares that are offered at these prices.

 

Logically, over time the price wil reflect the value of the shares and then they'll have the stock currency as an option again to start investing.

[maybe4less]

First think stop losing money on lightning in UK.

Second, 25-25 buyback and debt payback.

50% left for acquisitions.

However if they think something good will come along in the LBTYA parent vehicle then I would remove the 25% debt payback unless interest rates begin to ratchet up which doesn't seem yet the case.

I would not buyback too much shares because remember, investment is laying out capital today to earn more money tomorrow.

If you return the money, you will just need to raise it again if you want to invest in a new investment or business.

However if it alot below cash valuation of the shares then it would make sense to buy some back.

Money used to buyback shares is gone forever unless you do an equity raise and you see how those tend to crash stock prices. Better keep a good chunk of the cash.

 

Where do you expect them to find good acquisition targets? I really don't see them looking outside of Europe and there is nothing left to buy of scale in Europe. Potentially the JV in the Netherlands, but they are more likely to sell that to Vodafone than buy it IMO (although obviously it depends on the terms). The most likely acquisition is an attractively priced mobile business in the UK with good synergies similar to Base in Belgium.

 

But they are not going to blow money on an acquisition with the share price this attractive. Why pay acquirer's multiples if shares are this low?

[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)

 

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.

 

In the end we were right BUT the safest move would have been to simply wait on the approval then buy at market open.

For some reason it took investors all day long to wake up to the news and move the stock up...  ::)

 

Still much too cheap in my opinion (probably a better risk/reward than yesterday actually) so I'm happy to hold and excited for what's next!

[Jurgis]

Yeah, I looked to buy more after the open when it was up only 1.5% but dropped the ball. With the hindsight, it was easy 5+% in a day...  ::)

[WayWardCloud]

Liberty companies constantly defy market efficiency.

There was the 40% discount of LVNTA, the 30%+ discount of LSXMA, the constant swings between class A and class K shares...

 

I wonder if that's an untold advantage of the tracking stocks structure. Liberty always says they made them to unlock value but it's clearly not doing that. I think Malone considers being public as a way to take advantage of buybacks when the price is too low and for-shares M&A when the price is too high (SIRI buying Pandora for example). Maybe they knew creating tracking stocks would keep many funds at bay for legal reasons and anticipated being able to take advantage of sub-optimal market efficiency from the noobs left to invest publicly with them (us!  ;D).

[scorpioncapital]

First think stop losing money on lightning in UK.

Second, 25-25 buyback and debt payback.

50% left for acquisitions.

However if they think something good will come along in the LBTYA parent vehicle then I would remove the 25% debt payback unless interest rates begin to ratchet up which doesn't seem yet the case.

I would not buyback too much shares because remember, investment is laying out capital today to earn more money tomorrow.

If you return the money, you will just need to raise it again if you want to invest in a new investment or business.

However if it alot below cash valuation of the shares then it would make sense to buy some back.

Money used to buyback shares is gone forever unless you do an equity raise and you see how those tend to crash stock prices. Better keep a good chunk of the cash.

 

Where do you expect them to find good acquisition targets? I really don't see them looking outside of Europe and there is nothing left to buy of scale in Europe. Potentially the JV in the Netherlands, but they are more likely to sell that to Vodafone than buy it IMO (although obviously it depends on the terms). The most likely acquisition is an attractively priced mobile business in the UK with good synergies similar to Base in Belgium.

 

But they are not going to blow money on an acquisition with the share price this attractive. Why pay acquirer's multiples if shares are this low?

 

If they were smart, they would realize the most simple genius statement that Buffett said once long ago. You don't have to BE in any industry. Capital can go anywhere it wants. Alas, most companies don't think this way. They are scared of making a mistake...but then again being in some industry they are in may already be a mistake. When you're down or not providing reasonable good returns you got to change.

But anyway I don't expect this. But I hold out the possibility that Malone and Maffei who hold some control? see this and can shift capital where it is best used even in totally different field.

[Jurgis]

Liberty companies constantly defy market efficiency.

There was the 40% discount of LVNTA, the 30%+ discount of LSXMA, the constant swings between class A and class K shares...

 

I wonder if that's an untold advantage of the tracking stocks structure. Liberty always says they made them to unlock value but it's clearly not doing that. I think Malone considers being public as a way to take advantage of buybacks when the price is too low and for-shares M&A when the price is too high (SIRI buying Pandora for example). Maybe they knew creating tracking stocks would keep many funds at bay for legal reasons and anticipated being able to take advantage of sub-optimal market efficiency from the noobs left to invest publicly with them (us!  ;D).

 

Right. I used to play A / K shares tango, but then I lost my automated spread tracker and haven't done that for couple years now.

 

And Malone definitely created the complicated tracker structures at least partially to (ab)use information advantage vs minority shareholders.

[Value92]

Long-term the European telco space will be a tough place to earn great returns. Just look at what’s happening in Belgium. Telenet had to open up its network for 3rd Party providers. Since 3 quarters all KPIs turned for the worse. The same kind of regulation is on the way in the Netherlands and Germany. Long term the right place to be in the European telco space is on the MVNO side.

 

The dream of a big unified European TCI is dead. It makes no sense to own multinational cable companies in Europe. Regulations in the different countries prevent you from getting big cost synergies. The national authorities are against it. The German regulators would have voted against the Vodafone deal.

 

Telenet is done and fully mature. VodafoneZiggo has to realize all of the synergies of a converged telco firm. Regulation is turning unfavorable in those markets: time to sell.

 

I would never buy into Telenet right now. Malone will take you out on the cheap like he did with the Schneider family in the early 2000s.

 

The most interesting market is the UK. Here you can build new homes and realize big future synergies by buying a mobile network or by selling to a irrational MNO with HQ in the UK.

 

Due to the need for higher speeds there might be a period of more business friendly regulation for up to ten years, especially in the UK. After that you don’t want to be invested in the space as regulation will turn against network operators.

 

Liberty looks cheap on a multiple basis but the unanswered question is can the company convince on the operational side. Is Lutz Schüler up to the task to get Project Lighting under control? by the way I don’t know any fiber build on the globe without delays and complications: in the US Otelco even wants to start building cable to reach customers faster. Does anybody have meet Lutz and taken a look at is track record?

 

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator. There might be a few on the other side of the Atlantic.

[Jurgis]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator.

 

Yes. That's why I finally reduced my Liberties' holdings a lot even though I planned to never sell. (I still own some DISCK, FWONA, LBRDA, LBTYK, LEXEA, LSXMA, and unfortunately QRTEA. I sold LTRPA, LILA, LGFB, GLIBA. This might have been wrong time to sell - I can't be sure.)

 

I agree with you that investing into EU cablecos is probably not the way to go. We'll have to see what Liberty Global decides to do.

[WayWardCloud]

Malone will take you out on the cheap like he did with the Schneider family in the early 2000s.

 

Could you explain this part please? I'm not familiar with the Schneider story and I'm trying to see what Malone's options are for Belgium.

[dwy000]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator. There might be a few on the other side of the Atlantic.

 

Not sure I agree with that.  You could argue it in Global (and possibly in LILAC) but if I look at Charter, Liberty Media, Sirius, Discovery, QVC, all their cash flow beasts, they are all best in class managements.

[scorpioncapital]

So the poverty of eu Telecom is inability to have exclusivity and or caps on pricing?

I think they should sell not just Germany and Switzerland but also Netherlands, Belgium, Poland and frankly just move into a new line of business with less government involvement.

[Value92]

Could you explain this part please? I'm not familiar with the Schneider story and I'm trying to see what Malone's options are for Belgium.

 

Malone came in and bought the junk bonds for 20 cents on the dolar and later fired the son of Gene Schneider. Fun times!

 

Malone will take advantage of you if you are weak and in dire need. If stocks sell of, he will buy Telenet on the cheap and use the the NOLs of VodafoneZiggo to shield its income for a couple of years.

 

Link for the full article: http://archive.fortune.com/magazines/fortune/fortune_archive/2002/02/18/318149/index.htm

 

Excerpt from the article:

Like many cable companies, UGC is a family business. It got into trouble in 1999 when Schneider installed his son, Mark, as head of UGC's European subsidiary, which accounts for the bulk of its assets. The younger Schneider went on a shopping spree, spending more than $5 billion on cable companies in a dozen countries. But revenue from new services failed to materialize, and the European arm found itself overextended. Mark can be "a very disobedient child," an exasperated Gene Schneider told FORTUNE in 2000. "He works very hard, but you can't buy everything that crosses your doorstep." Last August, Mark resigned as CEO of the European subsidiary; he remains a UGC director.

 

For Malone, UGC's distress was a juicy opportunity. He had already bought 9.4% of the company (and 36% of its voting rights) in 1999 after early investors wanted to sell out. Schneider, worried about an unfriendly predator, had asked Malone to step in. "There was a concern that if someone hostile to Gene bought the stock, they could disrupt Gene's operations," Malone said in October 2000. Over the next 18 months, Liberty increased its stake to 19.7% (with 39.5% of the voting rights), buying at prices ranging from just over $50 a share to just under $2.

 

When UGC's European woes sent its stock price tumbling, Malone pounced. He lent the European subsidiary $857 million and bought $1.7 billion of its junk bonds at 20 cents on the dollar. He then assigned that debt to the parent company and invested $200 million in cash in return for stock that will boost Liberty's stake to 72.3%, including 94% of the voting rights.

 

So for only $2 billion, Malone will have won control of a company that at its peak two years ago was worth about $13 billion. And this isn't a hollow Internet company without a business plan, but a real outfit, with cable networks in 17 countries and annual revenues of $1.6 billion. Malone has a standstill agreement to vote his shares with Schneider. People close to the companies, though, say Malone is calling the shots. Neither of the Schneiders was available for comment, but sources in Europe say that both are unhappy with how events have unfolded.

[Value92]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator. There might be a few on the other side of the Atlantic.

 

Not sure I agree with that.  You could argue it in Global (and possibly in LILAC) but if I look at Charter, Liberty Media, Sirius, Discovery, QVC, all their cash flow beasts, they are all best in class managements.

 

Charter is solid but even there the compensation is ridiculous. $1 billion? Come on! Even in the good old USA there has to be a limit on CEO compensation. Malone himself got a much tougher job done (creating the biggest cable company in the US and seed financing cable channels) for much less money.

 

The other ones I'm not 100% certain. Personally I find it too tough to put them in the 10 out of 10 CEO camp (a rather small village with few inhabitans). I have to admit that I don't feel comfortable putting all of those companies in my circle of competence.

 

All in all there is no one I would let marry my (yet unborn) daughter. Next!

[Value92]

So the poverty of eu Telecom is inability to have exclusivity and or caps on pricing?

I think they should sell not just Germany and Switzerland but also Netherlands, Belgium, Poland and frankly just move into a new like of business with less government involvement.

 

In Europe we are not as hardcore capitalist as the people in the US. Don't forget the incumbents are former state-owned companies with lots of employees and political influence. They might be inefficent but are partially also irrational on the returns they need to justify an infrastructure investment.

 

Cable is not a franchise business as you will suffer, if you are dealing with irrational competition that acts as they are still a state-owned enterprise that has to offer a service no matter the returns.

[Value92]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator.

 

Yes. That's why I finally reduced my Liberties' holdings a lot even though I planned to never sell. (I still own some DISCK, FWONA, LBRDA, LBTYK, LEXEA, LSXMA, and unfortunately QRTEA. I sold LTRPA, LILA, LGFB, GLIBA. This might have been wrong time to sell - I can't be sure.)

 

I agree with you that investing into EU cablecos is probably not the way to go. We'll have to see what Liberty Global decides to do.

 

Even tough I might come off bearish Liberty Global has a lot of cash at the right time in the cycle as everybody else in Europe is suffering (Altice, Vodafone,...). The key question for me to answer is, if the UK will work out from an operational perspective. Has anybody an educated opionion on Lutz Schueler, the new head of Virgin Media?

 

Long-term EU telco is not the place to be but for a trade (3 to 5 years) it might be alright at the right cheap, cheap price...

[Jurgis]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator. There might be a few on the other side of the Atlantic.

 

Not sure I agree with that.  You could argue it in Global (and possibly in LILAC) but if I look at Charter, Liberty Media, Sirius, Discovery, QVC, all their cash flow beasts, they are all best in class managements.

 

Maybe you are right. Maybe the capital deployment (for which Malone was famous...) that went astray more than operations. I.e. perhaps it was a mistake to deploy capital into EU cable (LBTYA), LatAm cable/mobile (LILA), TV shopping (QRTEA), US content (LGFB) rather than these companies having subpar operators. This is ironic since capital deployment was supposed to be the strong suit of Malone and Liberties.

 

I think the overall result is a mix of operations and capital deployment and it might not be simple to distinguish how much each contributed/detracted.

 

 

[Liberty]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator. There might be a few on the other side of the Atlantic.

 

Not sure I agree with that.  You could argue it in Global (and possibly in LILAC) but if I look at Charter, Liberty Media, Sirius, Discovery, QVC, all their cash flow beasts, they are all best in class managements.

 

Maybe you are right. Maybe the capital deployment (for which Malone was famous...) that went astray more than operations. I.e. perhaps it was a mistake to deploy capital into EU cable (LBTYA), LatAm cable/mobile (LILA), TV shopping (QRTEA), US content (LGFB) rather than these companies having subpar operators. This is ironic since capital deployment was supposed to be the strong suit of Malone and Liberties.

 

I think the overall result is a mix of operations and capital deployment and it might not be simple to distinguish how much each contributed/detracted.

 

Show me someone with a perfect batting average. I'm pretty sure Malone thinks of his companies as a basket, like a virtual conglomerate. Some are always doing better than others, but overall, I'd say he's been doing pretty well over time. Kind of like how some companies or investments inside BRK might be doing badly or be mistakes, but that doesn't mean the whole has "bad capital allocation".

[Jurgis]

I find great operators are what is mostly lacking in Malone companies. All that great talk on capital allocation by the investment community is worth nothing without a great operator. There might be a few on the other side of the Atlantic.

 

Not sure I agree with that.  You could argue it in Global (and possibly in LILAC) but if I look at Charter, Liberty Media, Sirius, Discovery, QVC, all their cash flow beasts, they are all best in class managements.

 

Maybe you are right. Maybe the capital deployment (for which Malone was famous...) that went astray more than operations. I.e. perhaps it was a mistake to deploy capital into EU cable (LBTYA), LatAm cable/mobile (LILA), TV shopping (QRTEA), US content (LGFB) rather than these companies having subpar operators. This is ironic since capital deployment was supposed to be the strong suit of Malone and Liberties.

 

I think the overall result is a mix of operations and capital deployment and it might not be simple to distinguish how much each contributed/detracted.

 

Show me someone with a perfect batting average. I'm pretty sure Malone thinks of his companies as a basket, like a virtual conglomerate. Some are always doing better than others, but overall, I'd say he's been doing pretty well over time. Kind of like how some companies or investments inside BRK might be doing badly or be mistakes, but that doesn't mean the whole has "bad capital allocation".

 

There have been people on CoBF who analyzed Liberty universe and picked the good/bad parts couple years ago. So it was rather visible (I ignored it at my own peril) and Malone could have done Buffett and not piled the good money after the bad into companies/areas that were struggling. I'd say LBTYA sales to Vodafone is a good decision. LILA decisions so far were subpar - and CWC was somewhat rightly called Malone dumping his CWC shares at excessive cost to LILA shareholders. QRTEA decisions have been very much dumping the good money after bad. LGFB same. These are pretty large pieces to ignore. IMO, Malone is stuck with things he knows from the past that may not be working anymore like QRTEA, EU cable cos, etc.

 

It is tough to say whether Liberty universe return was good or bad. It depends very much on which pieces a person owned and when. Same can be said about Malone's return in the last X years. My guess is that his return has not been great, but I did not calculate it. And I might be wrong, since some parts like LBRDA and FWONA have done well.

 

I might be wrong with my assessment too. LILA/LGFB/QRTEA might turn around and do well. LBTYA may invest its cash in spectacular manner. We'll see.

[Liberty]

Liberty Media complex did pretty well over the past 13-14 years:

 

 

I'd say that's most of his fortune.

 

Liberty Global underperformed, but Malone's cost basis is probably pretty low, pretty sure he beat the SP500 from that base, so it's not like a total disaster. Obviously things didn't turn out as expected, but that happens.