LBTYA - Liberty Global

[scorpioncapital]

Why is Malone , a rational Investor not canning fries? Discovery also has a high spending and costly CEO. These two are spending big, being compensated big for poor strategic and operational results.

 

I'm also worried about the recent announcements of major capital spending in the UK , albeit with a joint venture partner. However the low pound due to brexit actually makes it an ideal time for growth there . Like srg , you develop when rates are low for tomorrow's gain.

 

Still I would like to see more funds used to pay down debt. Just because buybacks have a higher yield than debt is a reason I see trotted out but it makes no sense ..you have to manage risk and go where things may go. Debt costs may spike anytime. In my portfolio I reduce debt when I can even if a dividend yield is higher. Carry trades today are upside down and won't go on forever.

 

Well, value stocks are undervalued so maybe that's part of the reason. Overall, I see good downside protection here but would like to see some profits eventually . Remember why hold any stock if it goes in circles and won't give you a reasonable return. Stocks are to make money not to waste time !

 

A good article

https://www.eureporter.co/frontpage/2019/09/13/sunrise-saga-underlines-broader-problems-in-the-eus-telecoms-sector/

 

According to the 2nd fairness opinion they are getting a bargain if synergies materialize (although these opinions may not be fair I read it and felt it was relatively objective) : https://www.sunrise.ch/content/dam/sunrise/corporate/documents/Fairness_Opinion.pdf

[WayWardCloud]

The UPC-Sunrise deal got approved by the Swiss FCC.

The shareholders will vote on whether to raise new capital on October 23rd.

 

https://www.reuters.com/article/us-libertyglobal-m-a-sunrise-comm-grp/sunrise-plan-to-buy-liberty-globals-upc-gets-anti-trust-green-light-idUSKBN1WB0E1?il=0

[Value92]

Why is Malone , a rational Investor not canning fries? Discovery also has a high spending and costly CEO. These two are spending big, being compensated big for poor strategic and operational results.

 

I'm also worried about the recent announcements of major capital spending in the UK , albeit with a joint venture partner. However the low pound due to brexit actually makes it an ideal time for growth there . Like srg , you develop when rates are low for tomorrow's gain.

 

Still I would like to see more funds used to pay down debt. Just because buybacks have a higher yield than debt is a reason I see trotted out but it makes no sense ..you have to manage risk and go where things may go. Debt costs may spike anytime. In my portfolio I reduce debt when I can even if a dividend yield is higher. Carry trades today are upside down and won't go on forever.

 

Well, value stocks are undervalued so maybe that's part of the reason. Overall, I see good downside protection here but would like to see some profits eventually . Remember why hold any stock if it goes in circles and won't give you a reasonable return. Stocks are to make money not to waste time !

 

A good article

https://www.eureporter.co/frontpage/2019/09/13/sunrise-saga-underlines-broader-problems-in-the-eus-telecoms-sector/

 

According to the 2nd fairness opinion they are getting a bargain if synergies materialize (although these opinions may not be fair I read it and felt it was relatively objective) : https://www.sunrise.ch/content/dam/sunrise/corporate/documents/Fairness_Opinion.pdf

 

Malone is loyal. He will never oust one of his guys - read Cable Cowboy again.

 

The debt is callable twice before it matures. Liberty has enough time to refinance or pay down the debt. Telcos/cable companies are cash gushers and it is exactly what Malone has done in the past. I would never expect a 78-year old man to change his ways.

 

Who paid for the fairness opinion? Of course they made it look like a bargain...

[Foreign Tuffett]

Is there anyone here that believes the Sunrise-UPC deal WILL go through without the terms being adjusted? If so, could you state why you think it will?

[ander]

Is there anyone here that believes the Sunrise-UPC deal WILL go through without the terms being adjusted? If so, could you state why you think it will?

 

Good question. Next step is what the shareholders vote. A simple majority is needed to approve the transaction. Could be close based on some media speculation. If it is approved, then goes through at current terms.

[scorpioncapital]

"Sunrise Chief Executive Olaf Swantee has signaled readiness to modify financing of the deal, although the details are not yet public."

 

I reAd the legal opinion. The Swiss? firm has done a pretty good job. The two premises one could argue with are the synergies and that it depended somewhat on peer analysis. However the most conservative dcf analysis did not yield a result, even without synergies much less than 6.3 billion. Perhaps plus minus 500m. I think that is a small enough range that may be negotiated.

[WayWardCloud]

I think there's still a decent chance this passes. Like 30-40%?

 

4 ways it could work:

- the vote gets its 50%

- they renegotiate a bit the overall deal and/or Freenet's exit terms in particular

- they lose the vote but do the deal anyway by raising debt instead of emitting stock

- Liberty keeps a small stake in the tie-up to lower the bill.

 

Seems to me that the CEO is fighting to keep his job so he must be extremely eager to oust Freenet and go with Liberty; he has nothing to lose. The rumors we hear in the media are just the parties acting strong to send a message to the other side. I bet behind close doors there is more desire to compromise than they are willing to admit because everybody has something to gain here.

[scorpioncapital]

I think any reduction in ownership even to 50 percent or less is beneficial. I think they should also start looking at selling Belgium and Netherlands. Not sure why they kept Poland though.

 

[ander]

Reuters article re: Sunrise concession on rights issue.

 

 

 

* Sunrise slashes rights issue, sees higher debt

 

* Freenet, AOC say deal still makes no strategic sense

 

* Sunrise bid for UPC remains uncertain - analysts (Adds AOC opposition to deal, analyst comment, CFO comment on debt in last three paragraphs)

 

By John Miller

 

ZURICH, Sept 30 (Reuters) - Sunrise Communications slashed the size of a rights offer but this failed to secure the support of a major shareholder for its 6.3 billion Swiss franc ($6.35 billion) purchase of Liberty Global's(LBTYA) Swiss UPC unit.

 

Germany's Freenet, which owns 25% of the Swiss telecoms group, pledged on Monday to keep up its fight against the transaction, despite Sunrise's move to cut its planned rights issue to 2.8 billion francs from 4.1 billion previously.

 

Luxembourg-based Active Ownership Capital (AOC), with less than 3% of Sunrise stock, also said it remained opposed despite the company's concessions.

 

This leaves the UPC transaction in doubt and sets up an Oct. 23 showdown at an extraordinary shareholders' meeting, when Sunrise Chief Executive Olaf Swantee must win a simple majority of investors for his expansion plan.

 

While he contends most shareholders are on his side now that he plans to sell fewer new shares in exchange for taking on more debt, Swantee acknowledged proxy advisers could play a big role, since foreign institutional investors often heed their advice.

 

"Not all the shareholders immediately tell you they are going to vote in favor or they are going to vote against it, because they are still waiting for the proxy advice," Swantee told reporters on a conference call.

 

"We still have the proxy advisers we need to, of course, work with in the next few days," added Swantee, who sees the addition of UPC as helping Sunrise better compete with government-controlled Swisscom.

 

Analysts from Bank Vontobel and Jefferies said the deal for UPC, while more attractive with the new terms, is anything but home and dry.

 

"All this does not address concerns over the price paid," Jefferies analyst Ulrich Rathe said in a note. "The likelihood of the deal passing has clearly increased overall from the 60-40 odds we estimated in our report from Sept. 9, but approval at the EGM is by no means guaranteed."

 

Sunrise shares were down 2.8% at 1400 GMT.

 

 

STRATEGIC LOGIC

 

Freenet, AOC and other investors oppose the deal on several fronts, including its price as well as concern that it is strategic folly to buy UPC cable assets just as the industry, including Sunrise, is introducing newer 5G mobile technology.

 

"If this is the only change, it will not affect our decision to vote against the deal," Freenet said in a statement, after Sunrise announced it was trimming the rights issue. "For now it is clear that the deal as such has lost its strategic logic."

 

Chief Financial Officer Andre Krause said the UPC-Sunrise combination will now see debt rising to 4.2 times earnings before interest, taxes, depreciation and amortisation (EBITDA) with the new deal terms, from 2.24 times EBITDA in June.

 

Krause projects that can be trimmed to below three times EBITDA within three years via increased synergies and a proposed new option for dividends to be paid in shares rather than cash.

 

"Thereafter, we will target to get below 2.5 times (EBITDA), to get back to a prudent capital structure and to allow for a continuation of our progressive dividend policy," he told investors on a conference call. ($1 = 0.9908 Swiss francs) (Reporting by John Miller; editing by Jason Neely and Emelia Sithole-Matarise)

 

 

[Foreign Tuffett]

Retuers reporting that the recommendations of the proxy advisors are likely to be determinative as to whether the vote passes or not

 

 

https://www.reuters.com/article/us-liberty-global-m-a-sunrise-comm-grp/at-least-30-of-sunrise-votes-oppose-rights-issue-for-upc-deal-investors-idUSKBN1WI1HQ

[scorpioncapital]

The question who is liberty going to offload this to if it does not pass? To be stuck with an asset...you could wind it down. Or ask for a discount. Maybe liberty will offer a last minute discount. But fries ego seems to suggest he will spin it as a great business we'll just keep it if we can't sell it.

[Value92]

The question who is liberty going to offload this to if it does not pass? To be stuck with an asset...you could wind it down. Or ask for a discount. Maybe liberty will offer a last minute discount. But fries ego seems to suggest he will spin it as a great business we'll just keep it if we can't sell it.

 

Salt Mobile???

[scorpioncapital]

Do they have the resources to buy it? Their shareholders may be spooked if sunrise backs out on questions of debt or profitability.

[kab60]

Haven't followed closely but got this from Berenberg (sellside) today;

 

Sunrise shareholders will vote on the UPC transaction on 23 October at an

EGM. The UPC deal enhances Sunrise’s already strong competitive

positioning versus Swisscom but does so at the cost of higher volatility and

an unbalanced near to mid-term risk/reward scenario, but with the

potential for higher returns than the standalone case in the long term.

Investors who, after all, look to telecoms for yield and capital preservation,

have to choose between the “steady Eddie” safety of Sunrise standalone

over “the volatile but potentially brilliant if all goes well” appeal of the newco.

The “nays” to the deal appear to have the numbers. Egos aside, common

sense would dictate that if the deal is rejected, Liberty Global would accept

a slightly lower price for UPC to pass its Swiss headache over to an eager

Sunrise management – an alternative deal with Salt is just fantasy in our view.

[ander]

Article 1:

 

Proxy adviser ISS has recommended shareholders vote against a rights issue Sunrise Communications will propose to shareholders to finance its planned 6.3 billion Swiss franc ($6.35 billion) takeover of cable operator UPC from Liberty Global(LBTYA), sources told Reuters.

 

"On balance, Sunrise appears to be overpaying for assets in a transaction that appears to have debatable long-term strategic merit. As such, shareholders are recommended to vote against the transaction at this time," ISS said in a document, according to the sources.

 

Article 2:

“Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators,” ISS said, adding that operational difficulties including declining revenues made the 6.3 billion franc consideration appear excessive.

[scorpioncapital]

While upc is a small part of liberty, it sends a bad sign if an asset can only be sold at a discount . At the lower price is liberty making a profit or perhaps best they can hope for is to dump the asset without a big loss and move on.

[ander]

"Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators"

 

Not a loss since even at that price it's multiples (I believe still in excess of 3x) of what they put in including dividends, etc.

But my question to the quote above would be is ISS accounting for the synergies?

[dwy000]

"Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators"

 

Not a loss since even at that price it's multiples (I believe still in excess of 3x) of what they put in including dividends, etc.

But my question to the quote above would be is ISS accounting for the synergies?

 

It's the comment from ISS "appears to have debatable long-term strategic merit" that I find most confusing.  Are they questioning the logic of combining cable/broadband with wireless?  That strategy underpins most telecom M&A over the past 3 years.

[WayWardCloud]

"Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators"

 

Not a loss since even at that price it's multiples (I believe still in excess of 3x) of what they put in including dividends, etc.

But my question to the quote above would be is ISS accounting for the synergies?

 

It's the comment from ISS "appears to have debatable long-term strategic merit" that I find most confusing.  Are they questioning the logic of combining cable/broadband with wireless?  That strategy underpins most telecom M&A over the past 3 years.

 

They also said:

 

"Long-term benefits of the 6.3B Swiss-franc deal aren't obvious, ISS says, "as cable’s competitiveness vis-a-vis fibre and 5G is questionable," even if there's a strategic advantage in the short to mid-term."

 

Both statements lead me to believe they clearly don't know the first thing about this industry.

[Munger_Disciple]

"Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators"

 

Not a loss since even at that price it's multiples (I believe still in excess of 3x) of what they put in including dividends, etc.

But my question to the quote above would be is ISS accounting for the synergies?

 

It's the comment from ISS "appears to have debatable long-term strategic merit" that I find most confusing.  Are they questioning the logic of combining cable/broadband with wireless?  That strategy underpins most telecom M&A over the past 3 years.

 

They also said:

 

"Long-term benefits of the 6.3B Swiss-franc deal aren't obvious, ISS says, "as cable’s competitiveness vis-a-vis fibre and 5G is questionable," even if there's a strategic advantage in the short to mid-term."

 

Both statements lead me to believe they clearly don't know the first thing about this industry.

 

+1

[rogermunibond]

Does Switzerland have different economics for fiber overbuild?

[cameronfen]

"Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators"

 

Not a loss since even at that price it's multiples (I believe still in excess of 3x) of what they put in including dividends, etc.

But my question to the quote above would be is ISS accounting for the synergies?

 

It's the comment from ISS "appears to have debatable long-term strategic merit" that I find most confusing.  Are they questioning the logic of combining cable/broadband with wireless?  That strategy underpins most telecom M&A over the past 3 years.

 

They also said:

 

"Long-term benefits of the 6.3B Swiss-franc deal aren't obvious, ISS says, "as cable’s competitiveness vis-a-vis fibre and 5G is questionable," even if there's a strategic advantage in the short to mid-term."

 

Both statements lead me to believe they clearly don't know the first thing about this industry.

 

My opinion is obviously in the minority on this, but even experts disagree on cable's competitiveness versus 5G.  Currently, 5G has issues on the wireless broadband front, but there is a relatively good chance telecom can figure it out.  I can't really handicap the exact probability but it's not so insignificant that it isn't a risk. 

[scorpioncapital]

5g is also in part an industrial technology not an end user one. I mean it may be for end users too but what will be the cost advantage and will there be home applications needing over 1gbps data stream which is what one can get with cable now. If 5g gives you the same rate at the same price...

[WayWardCloud]

"Our valuation analysis suggests a fair value range of 4.6 – 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators"

 

Not a loss since even at that price it's multiples (I believe still in excess of 3x) of what they put in including dividends, etc.

But my question to the quote above would be is ISS accounting for the synergies?

 

It's the comment from ISS "appears to have debatable long-term strategic merit" that I find most confusing.  Are they questioning the logic of combining cable/broadband with wireless?  That strategy underpins most telecom M&A over the past 3 years.

 

They also said:

 

"Long-term benefits of the 6.3B Swiss-franc deal aren't obvious, ISS says, "as cable’s competitiveness vis-a-vis fibre and 5G is questionable," even if there's a strategic advantage in the short to mid-term."

 

Both statements lead me to believe they clearly don't know the first thing about this industry.

 

My opinion is obviously in the minority on this, but even experts disagree on cable's competitiveness versus 5G.  Currently, 5G has issues on the wireless broadband front, but there is a relatively good chance telecom can figure it out.  I can't really handicap the exact probability but it's not so insignificant that it isn't a risk.

 

Oh yeah, definitely! Just to be clear, I'm not saying 5G is a technology to be dismissed or that it's not eventually going to support a growing part of our data transfers, maybe even some from home or work. My view is just that convergence is inevitable because ultimately consumers don't care whether their internet comes from a cable-co or a tel-co. They want it to be everywhere, on every device, fast and reliable. And it's all already wireless anyway (WiFi/4G/5G/balloons/satellites/whatever). 5G home access isn't there yet while cable already offers 1G WiFi and can easily go up to 10G. Also the cost per Gb of data is incredibly cheaper and the infrastructure is already there so it's a no-brainer right now. In the future, if last mile delivery to the home does end up being more efficient beaming 5G around the whole block than pulling cables to each house then cable cos can do just that. They already have the strongest backbone infrastructure which is what really matters.

 

I guess all I'm saying is ISS is wrong because:

1/There's strong and growing overlaps between the two services so FMC makes tremendous economic sense in terms of synergies.

2/5G is nothing but a new (costly and not there yet) last mile protocol. It's exciting and all, I just don't think it changes profoundly anything. It's only been taunted as a cable killer by Verizon because they were sour to have failed to acquire Charter.

 

(I'm totally biased by the way  ::))

[WayWardCloud]

https://www.reuters.com/article/us-sunrise-upc-takeover/liberty-global-offers-to-buy-500-million-francs-of-sunrise-shares-idUSKBN1WT0GS