CHTR - Charter Communications

[vince]

FWIW - my impression from watching that Malone interview was that the offers for CHTR were problematic - ie, disagreement over the value from Malone/Rutledge's POV vs the potential acquiror (Softbank/Sprint or Verizon).  It sounded like Malone/Rutledge were more or less aligned in their view.

 

The only disagreement was over Rutledge's buyback program.  Malone seemed to imply with his "one cookie now vs two cookies later" comment that he (Malone) would've preferred that CHTR's cash flows were directed at debt reduction rather than share repurchases. 

 

In contrast, Malone was more praiseworthy towards Discovery's CEO Zaslav, who has suspended buybacks after the merger with Scripps in favor of aggressive debt reduction for a couple of years.

 

Just my 2-cents.

 

wabuffo

 

I doubt Malone was in favor of debt reduction at CHTR except maybe temporarily because he thought the stock might have gotten ahead of itself on the M&A rumors. Malone tends to prefer higher leverage on cable assets than Rutledge, from what I've understood of the situation. Seemed to me like it was more about the execution of the buyback rather than the magnitude and leverage.

 

My initial thoughts, there are 2 separate issues.  First one was less clear whether liberty guys wanted more leverage to do more buybacks as the price fell and tied to that whether mgmt was too aggressive blowing their wad at higher prices.  The second issue was the deal that never happened.  I also do agree that the deals presented wouldn't have satisfied liberty guys or mgmt, but I think liberty guys wanted to talk further with potential acquirers whereas Tom, seeing they would not get anywhere near 550, was against talking further as the specific action of just talking further would increase significantly the chances of a deal but one that would still fall well below what Tom believes he can do with his plan, on a present/future value basis. 

[wabuffo]

I doubt Malone was in favor of debt reduction at CHTR except maybe temporarily because he thought the stock might have gotten ahead of itself on the M&A rumors.

 

From that November 2018 interview with CNBC's David Faber:

Tom is being rewarded for a clear pure play leveraged cash flow growth buyback story. Not experimenting over here, not trying to buy a content company or a – right? So Charter is currently, and the Charter shareholders are currently being rewarded the same way — with premium valuation and a big buyback program that gives liquidity to its shareholders. Okay? Now that is not my traditional way of building a business but it’s Tom’s, and it’s working.

 

FWIW - Why would Malone clearly say he doesn't agree with "Tom's way of building a business".  And later in the interview, he ties the buyback to the "one cookie now versus two cookies later" delayed gratification experiment making it sound like he thinks the buyback program is too early and should've been delayed. 

 

My own opinion is that Malone knows they stretched to acquire the Time-Warner and Newhouse cable franchises and would've preferred debt reduction first (two cookies later) vs buybacks (one cookie now).

 

wabuffo

[cameronfen]

My feeling is US cable is an island globally. I don't predict even Europe or UK will do as well at global. There is something about US allowing these giant duopolies. And also pricing power. To me it is insane that internet alone should cost 100 usd a month. I can do almost 80% of my work including streaming on adsl or 4g lte costing like 10 bucks a month outside north america. 3 cheers for US cable investors but i'm not sure about how this develops.

 

The US' much lower population density than South Korea/Japan/UK/Germany/France/etc almost certainly plays a role.

 

http://statisticstimes.com/demographics/countries-by-population-density.php

 

IMO it's more useful to talk about local monopolies (ala regulated utilities) than "giant duopolies" when discussing US cable industry. Cable companies aren't generally directly competing with each other like Coke and Pepsi are.

 

The anecdotal evidence seems to suggest that the lack of competition is in major population centers like NYC. Again, I lived in 3 location during the last few years and in each suburban location there were 2-3 competitors for high speed Internet connection.

 

I can also attest that there are rural locations in Germany for ample that are still underserved. I believe the reason for the divergence in the US vs Europe is that each European country had a former state Telecom covering 100% of the country and pretty much any service (fixed phone, wireless, internet) for a fairly low price and its difficult to compete against those.  The US had a patchwork of local telecoms after the ATT breakup.

 

Regarding your first point about no competition in major pop centers, do you know why that is?  Or is that just an observation?

[Spekulatius]

My feeling is US cable is an island globally. I don't predict even Europe or UK will do as well at global. There is something about US allowing these giant duopolies. And also pricing power. To me it is insane that internet alone should cost 100 usd a month. I can do almost 80% of my work including streaming on adsl or 4g lte costing like 10 bucks a month outside north america. 3 cheers for US cable investors but i'm not sure about how this develops.

 

The US' much lower population density than South Korea/Japan/UK/Germany/France/etc almost certainly plays a role.

 

http://statisticstimes.com/demographics/countries-by-population-density.php

 

IMO it's more useful to talk about local monopolies (ala regulated utilities) than "giant duopolies" when discussing US cable industry. Cable companies aren't generally directly competing with each other like Coke and Pepsi are.

 

The anecdotal evidence seems to suggest that the lack of competition is in major population centers like NYC. Again, I lived in 3 location during the last few years and in each suburban location there were 2-3 competitors for high speed Internet connection.

 

I can also attest that there are rural locations in Germany for ample that are still underserved. I believe the reason for the divergence in the US vs Europe is that each European country had a former state Telecom covering 100% of the country and pretty much any service (fixed phone, wireless, internet) for a fairly low price and its difficult to compete against those.  The US had a patchwork of local telecoms after the ATT breakup.

 

Regarding your first point about no competition in major pop centers, do you know why that is?  Or is that just an observation?

 

It’s an observation based on BG2008’s ancetode and others. I have no clue why this is, but the numbers don’t lie. Cable/internet in other countries is just not as good of a business than in the US. I was a dope too investing in LILA until I finally saw the light and realized that  CMCSA and CHTR are just better business. The best I can figure that some business are more competitive in some countries than in others. For example, retail is fiercely competitive in the US, groceries is fiercely competitive in Germany. Banking is another one that is very competitive in Germany for private customers, but much less so in Britain and the US from my experience and based on the interest rate margins..

 

I just take it for what it is and invest accordingly, as I think these inefficiencies will persist for a long time.

[cameronfen]

^^makes sense.  I was just curious.  After definitely getting burned on LiLak, I only have a starter position in Liberty Global so I can take advantage if the deal goes through.  Other than special situations, I mainly focus on tech companies now.  I like the cable industry so I try to stay up to date but until I figure out what 5g means I am on the sidelines with long term capital. 

[Munger_Disciple]

FWIW - Why would Malone clearly say he doesn't agree with "Tom's way of building a business".  And later in the interview, he ties the buyback to the "one cookie now versus two cookies later" delayed gratification experiment making it sound like he thinks the buyback program is too early and should've been delayed. 

 

Malone said that about Charter. But if you look at Malone's cable holdings outside the US, Liberty Global and Liberty Latam, they have similar or higher leverage than Charter. Perhaps Malone thinks Charter should delver first so that they can partner with Comcast to buy Tmobile/Sprint.

[dwy000]

My feeling is US cable is an island globally. I don't predict even Europe or UK will do as well at global. There is something about US allowing these giant duopolies. And also pricing power. To me it is insane that internet alone should cost 100 usd a month. I can do almost 80% of my work including streaming on adsl or 4g lte costing like 10 bucks a month outside north america. 3 cheers for US cable investors but i'm not sure about how this develops.

 

The US' much lower population density than South Korea/Japan/UK/Germany/France/etc almost certainly plays a role.

 

http://statisticstimes.com/demographics/countries-by-population-density.php

 

IMO it's more useful to talk about local monopolies (ala regulated utilities) than "giant duopolies" when discussing US cable industry. Cable companies aren't generally directly competing with each other like Coke and Pepsi are.

 

The anecdotal evidence seems to suggest that the lack of competition is in major population centers like NYC. Again, I lived in 3 location during the last few years and in each suburban location there were 2-3 competitors for high speed Internet connection.

 

I can also attest that there are rural locations in Germany for ample that are still underserved. I believe the reason for the divergence in the US vs Europe is that each European country had a former state Telecom covering 100% of the country and pretty much any service (fixed phone, wireless, internet) for a fairly low price and its difficult to compete against those.  The US had a patchwork of local telecoms after the ATT breakup.

 

Regarding your first point about no competition in major pop centers, do you know why that is?  Or is that just an observation?

 

I believe it goes back to the cost of laying cable/fiber.  In major pop centers the cost of licensing and rights of way is prohibitive as well as the cost of ripping up streets.  There have been a few who tried it like RCN (and Charter before filing for bankruptcy) and others who have tried leasing from the incumbent but the ability to ramp up customers to pay for the cost is hard and rarely works beyond really high density areas like apartment buildings (where you often have to offer special pricing to building to be exclusive supplier).  Google Fiber was trying it in Tier 2 cities and couldn't make the economics work.  It's also because the incumbents will generally just match price to discourage expansion and you lose all competitive edge.  Finally, with the FCC applying Title 2 a couple of years ago, that gives them the right to set (or cap) pricing for internet and it's hard to make a capital decision when you may not be able to set pricing.  That's my understanding why it generally comes down to 2-3 players and nobody new comes in.

 

 

[cameronfen]

^^ thanks.  so the pop density works both to deter entrants and improve economics.  That's quite interesting. 

[wabuffo]

Perhaps Malone thinks Charter should delver first so that they can partner with Comcast to buy Tmobile/Sprint.

 

I'm not sure about buying T-Mobile/Sprint - but I think Malone always likes optionality and flexibility.  That's why I believe that he would have preferred that Charter pay off debt rather than buying back stock early on.  De-levering the balance sheet gives him optionality which he values.  Malone is a deal junkie.  He's always talking about balance sheet capacity so that he can be a buyer on margin when asset prices are to his liking.

 

wabuffo

[scorpioncapital]

I shifted not too long ago into charter from global, although I already had more charter anyway. Why? Just a fast look at the balance sheet. Charter balance sheet is clean! Global looked a bit like spaghetti. Since I see financial statements like works of art this had an impact on me )

 

As for Malone in the interview, I remember he said something about the Softbank guy offering $500 and he was like, is he offering the actual cash? No. So there was no credible offer at $500 but if there was, perhaps they would have taken it. In retrospect, even a discredible offer at $500 might have been good 1 or 2 years ago but that's water under the bridge. Who knows how it develops but perhaps another 30 to 50% might stimulate some more thinking on cashing out.

[wabuffo]

As for Malone in the interview, I remember he said something about the Softbank guy offering $500 and he was like, is he offering the actual cash? No. So there was no credible offer at $500.

It wasn't just that there was little or no cash (perhaps mostly Sprint stock and some cash) - but the offer was "unequal".  Malone mentioned that only part of the offer for CHTR was at a "guaranteed price" and that it would make Malone "conflicted" in taking the offer to the BOD. 

 

I took that to mean that Masa was offering to put up enough stock for the super-voting shares to collar the offer at a guaranteed price in order to get control.  But the regular and non-voting shares would get no such collar/guarantee.  That would've been great for Malone, Newhouse family, etc who own the majority of the controlling shares but a minority of the total common shares - but not great for the non-controlling shareholders whose real price would fluctuate (probably down) with the value of the acquirer's stock.  I'm not 100% sure that this is what Malone meant by the "unequal" offer - but I'm guessing it was something similar to this scenario.

 

IIRC, the offer also assumed aggressive synergy savings/speedy integration plans that Malone placed doubts on (and clearly Rutledge was not a fan of).

 

wabuffo

[scorpioncapital]

Classy guy. If I had to delegate to a manager this guy fits the bill. Sometimes it feels like finding smart managers is an easy way to riches. However it is very interesting. Because I have seen many crocodiles speak the quality talk, the 'value investing talk' , to find out they are quite clueless. In fact, even when they speak the value talk I perk up. Because if you understand the game deeply, you can even spot fake value talk versus real value talk. And when I hear value without understanding growth is part of value it also is a red flag. Either way, I think one is safer with a Malone vehicle...however I do note in a severe recession, consumer discretionary can tank. Leisure, etc..it isn't as rock solid. Cable possibly has more utility like features.

[skanjete]

In light of the previous discussions a few things :

- The playbook of Global, Latam, and Charter is basically the same : since Vodafone acquired some cable assets in Germany they saw that the combination of wireless with cable works really fine. Since Vodafone had the cards in Germany, and Global wasn't in a position to consolidate, they sell the German cable assets to a wireless company. The same in the Netherlands where they made a joint venture for Ziggo, etc. Where they can, they consolidate wireless and cable, where they can't, they sell the assets to the party who has the synergies and can offer the most.

- The same goes for Charter. Whether or not 5G is succesfull, it will still be the case that data transportation wil grow exponentially (streaming is something, but suppose autonomous driving takes off, internet of things....) and technically, it stays a fact that cable is the cheapest way to transport vast amounts of data. 5G can have its place, but cable likely always will have its role as backbone of the network. Probably a combination of both will be the future. With Charter, they're now integrating the mergers with TWC and Newhouse, but when that's done, think end 2019-2020, they'll look to consolidate with a wireless partner. Several options are possible being acquired or acquire themselves, maybe together with Comcast.

- At that point their share price will reflect better value as well. My best guess is around 550-600US$, so they'll have a currency or get a better price.

- Rutlegde will be in favor of a deal as well, because then his options finally will have some value. If I remember correctly, I thought that his options had a strike price north of 500$, so logically, he was not very motivated to sell the company at a price between 450-500$ a few years ago.

- Finally, it was mentioned that cable isn't as succesfull in Europe as in America, amongst others because there is more competition from the national telco companies with their national reach. I don't think so. The main advantage the telcos have is that in some cases they also have the wireless option available at the moment whereas the cable companies still operate in many cases with MVNO's. That's why cable and wireless are consolidating. Once they have a wireless option available, the telco's are at a major disadvantage. I spoke some time ago with a board member of one of the main telco companies who is in direct competition with Liberty Global and he complained and simply stated they are not in a position to compete with cable. They are not only technologically at a disadvantage, but in many cases their hands are tied by politicians because the government still has a major stake in the former national telco monopoly/company. So in many cases the national telcos can't plan for the long term and can't make the necessary decisions to stay competitive with the cable companies.

 

[vince]

Vince, could you elaborate on this please?

One last point that's been on my mind.  Malone is already filthy rich and has evolved into favoring diversification over concentration.  He has also stated that the game has changed due to rapid technological disruption and consumer behavior.  I have seen signs of his evolution in other assets he owns as well.  Like it or not, Malone followers will likely have to settle for lower returns going forward but with some added safety.  That's my take anyway

 

Hey WayWord, can you be a little more specific about your question?  I believe Malone is playing a little more defence based on the factors I mentioned which puts him at odds with Chtr mgmt who are really just copying his playbook.  I was under the impression, before the video and other comments made, that Chtr's capital plan was vintage Malone and had his full backing.  That is obviously not the case.  Take a look at Gliba and Lbrda....large discounts to an asset they like very much and they arent taking advantage of it by buying back the stock aggressively.  Sometimes there are other factors at play with specific assets so it's probably more complicated than just saying either buyback because its great value or dont because its not.  Having said that, it sure does seem like he is favoring a less concentrated approach.

[Munger_Disciple]

From the Nov 2018 CNBC interview transcript:

 

FABER: It seems to have passed. Do you --

 

MALONE: For now.

 

FABER: For now?

 

MALONE: For now.

 

FABER: Do you regret it passed? Do you regret there was an opportunity there that wasn't seized given the stock is 328 right now?

 

MALONE: Look, you're always worth more dead than alive in the business world. Right? And on any given day you can usually sell a company for more than its market trading value. So in the short run, would that have been something to pursue and if you know, we owned -- instead of a 328 stock and you know, we had $350 worth of Verizon stock, would we be better off? Would the future be brighter? You know, I don't know. I mean, I think clearly some of us on the board and in the company thought we should have more aggressively pursued some of those interests. I can tell you that the deals that were on the table would not have gotten anybody's support. Okay? So Verizon would have had to get more aggressive for that deal to have had any chance. The problem with Masa's overture was it wasn't deemed to be equal for all shareholders. And as a result, some of us felt a) that it would be awkward to propose it.

 

FABER: At the same time –

 

MALONE: Do you think a T-Mobile/Sprint wanting to go into -- just look forward a few years. If it turns out that 5g is an attractive -- involves to be, demonstrated to be an attractive fixed solution, Charter will have a maturing high speed powered network in the part of the world it serves. Very incrementally positive to add a 5g on that-to-that platform.

 

FABER: Right now, Hans Vestberg, who is running Verizon --

 

MALONE: He's focused –

 

FABER: He's very focused on 5g,

 

MALONE: -- he's focused on 5g --

 

FABER: -- and they've been rewarded in the marketplace for doing so overtime. Last time when they went to 4g.

 

MALONE: Well, let me point out, Charter is trading at, what, 9.1 times. Comcast attributed to that business maybe seven. Tom is being rewarded for a clear pure play leveraged cash flow growth buyback story. Not experimenting over here, not trying to buy a content company or a – right? So Charter is currently, and the Charter shareholders are currently being rewarded the same way -- with premium valuation and a big buyback program that gives liquidity to its shareholders. Okay? Now that is not my traditional way of building a business but it's Tom's, and it's working.

 

FABER: And you clearly believe there may be another opportunity to revisit, if it makes sense, a sale of Charter at some point?

 

MALONE: Correct.

 

FABER: And perhaps Tom will be in a different place in terms of his view of value as well?

 

MALONE: Yes. And, you know, Tom is a terrific operator, right? And so he's got a very clear vision. This is a stage, right, where Tom is basically saying "Don't bother me with all this other stuff. I've got this focus and this vision and this challenge and I've got to get this done and once I've got that done then you guys, you naysayers, right, can say 'Now what should we do?' But if I don't get this done everybody will be disappointed." So I think for that board, in a year, two years this there will be a big question. Okay. "Now what?" "Now we're generating this big free cash flow. Are we going to have an opportunity to steal an NBC Universal from somebody like Brian did?"

 

From re-reading the transcript, it is clear to me that:

 

1. Malone would have clearly preferred to do a Verizon deal, but the price offered was too low. He said "I think clearly some of us on the board and in the company thought we should have more aggressively pursued some of those interests. I can tell you that the deals that were on the table would not have gotten anybody's support. Okay? So Verizon would have had to get more aggressive for that deal to have had any chance."

 

Translation: He would have liked Tom to engage Verizon but that did not happen because Tom wanted to focus on integration of TWC and Bright House, and improve cash flows & probably get his options to be worth more in case of a deal. Masa's last proposal was a non-starter.

 

2. Malone thinks the opportunity passed only "for now".

 

3. Malone clearly prefers de-levering as wabuffo indicated. You could infer that from "Timing, timing, if you have dry powder". Like wabuffo said, Malone likes the optionality a clean balance sheet gives him if were to do a deal in the future.

 

4. The timeline for a new deal is 1-2 years from now when Charter is generating massive cash flows.

 

5. Malone did mention Tmobile/Sprint in the interview. So he views both Verizon & Tmobile/Sprint as a potential future deal partners to drive towards wired+mobile convergence in the US.

 

6. I think Malone respects Tom a lot. Otherwise he would have pushed harder for a deal in 2017. IIRC Malone tried to hire Tom as Directv CEO in the past and Tom flatly turned him down and gave him a lecture as to why cable is so damn attractive compared to satellite (not that Malone needed a hard sell about cable) going forward. This was when Tom was working at Cablevision before Malone bought his Charter stake. Tom was proven to be correct about the future of cable vs. satellite. So Malone is willing to let Tom do his thing at Charter for a year or two, but after that he will push for a deal.

 

7. Malone will sell Charter if the price is right (and tax free). In other words, Charter does not need to be the acquirer.

 

 

[vince]

From the Nov 2018 CNBC interview transcript:

 

FABER: It seems to have passed. Do you --

 

MALONE: For now.

 

FABER: For now?

 

MALONE: For now.

 

FABER: Do you regret it passed? Do you regret there was an opportunity there that wasn't seized given the stock is 328 right now?

 

MALONE: Look, you're always worth more dead than alive in the business world. Right? And on any given day you can usually sell a company for more than its market trading value. So in the short run, would that have been something to pursue and if you know, we owned -- instead of a 328 stock and you know, we had $350 worth of Verizon stock, would we be better off? Would the future be brighter? You know, I don't know. I mean, I think clearly some of us on the board and in the company thought we should have more aggressively pursued some of those interests. I can tell you that the deals that were on the table would not have gotten anybody's support. Okay? So Verizon would have had to get more aggressive for that deal to have had any chance. The problem with Masa's overture was it wasn't deemed to be equal for all shareholders. And as a result, some of us felt a) that it would be awkward to propose it.

 

FABER: At the same time –

 

MALONE: Do you think a T-Mobile/Sprint wanting to go into -- just look forward a few years. If it turns out that 5g is an attractive -- involves to be, demonstrated to be an attractive fixed solution, Charter will have a maturing high speed powered network in the part of the world it serves. Very incrementally positive to add a 5g on that-to-that platform.

 

FABER: Right now, Hans Vestberg, who is running Verizon --

 

MALONE: He's focused –

 

FABER: He's very focused on 5g,

 

MALONE: -- he's focused on 5g --

 

FABER: -- and they've been rewarded in the marketplace for doing so overtime. Last time when they went to 4g.

 

MALONE: Well, let me point out, Charter is trading at, what, 9.1 times. Comcast attributed to that business maybe seven. Tom is being rewarded for a clear pure play leveraged cash flow growth buyback story. Not experimenting over here, not trying to buy a content company or a – right? So Charter is currently, and the Charter shareholders are currently being rewarded the same way -- with premium valuation and a big buyback program that gives liquidity to its shareholders. Okay? Now that is not my traditional way of building a business but it's Tom's, and it's working.

 

FABER: And you clearly believe there may be another opportunity to revisit, if it makes sense, a sale of Charter at some point?

 

MALONE: Correct.

 

FABER: And perhaps Tom will be in a different place in terms of his view of value as well?

 

MALONE: Yes. And, you know, Tom is a terrific operator, right? And so he's got a very clear vision. This is a stage, right, where Tom is basically saying "Don't bother me with all this other stuff. I've got this focus and this vision and this challenge and I've got to get this done and once I've got that done then you guys, you naysayers, right, can say 'Now what should we do?' But if I don't get this done everybody will be disappointed." So I think for that board, in a year, two years this there will be a big question. Okay. "Now what?" "Now we're generating this big free cash flow. Are we going to have an opportunity to steal an NBC Universal from somebody like Brian did?"

 

From re-reading the transcript, it is clear to me that:

 

1. Malone would have clearly preferred to do a Verizon deal, but the price offered was too low. He said "I think clearly some of us on the board and in the company thought we should have more aggressively pursued some of those interests. I can tell you that the deals that were on the table would not have gotten anybody's support. Okay? So Verizon would have had to get more aggressive for that deal to have had any chance."

 

Translation: He would have liked Tom to engage Verizon but that did not happen because Tom wanted to focus on integration of TWC and Bright House, and improve cash flows & probably get his options to be worth more in case of a deal. Masa's last proposal was a non-starter.

 

2. Malone thinks the opportunity passed only "for now".

 

3. Malone clearly prefers de-levering as wabuffo indicated. You could infer that from "Timing, timing, if you have dry powder". Like wabuffo said, Malone likes the optionality a clean balance sheet gives him if were to do a deal in the future.

 

4. The timeline for a new deal is 1-2 years from now when Charter is generating massive cash flows.

 

5. Malone did mention Tmobile/Sprint in the interview. So he views both Verizon & Tmobile/Sprint as a potential future deal partners to drive towards wired+mobile convergence in the US.

 

6. I think Malone respects Tom a lot. Otherwise he would have pushed harder for a deal in 2017. IIRC Malone tried to hire Tom as Directv CEO in the past and Tom flatly turned him down and gave him a lecture as to why cable is so damn attractive compared to satellite (not that Malone needed a hard sell about cable) going forward. This was when Tom was working at Cablevision before Malone bought his Charter stake. Tom was proven to be correct about the future of cable vs. satellite. So Malone is willing to let Tom do his thing at Charter for a year or two, but after that he will push for a deal.

 

7. Malone will sell Charter if the price is right (and tax free). In other words, Charter does not need to be the acquirer.

 

Very well said.

[Liberty]

I doubt Malone was in favor of debt reduction at CHTR except maybe temporarily because he thought the stock might have gotten ahead of itself on the M&A rumors.

 

From that November 2018 interview with CNBC's David Faber:

Tom is being rewarded for a clear pure play leveraged cash flow growth buyback story. Not experimenting over here, not trying to buy a content company or a – right? So Charter is currently, and the Charter shareholders are currently being rewarded the same way — with premium valuation and a big buyback program that gives liquidity to its shareholders. Okay? Now that is not my traditional way of building a business but it’s Tom’s, and it’s working.

 

FWIW - Why would Malone clearly say he doesn't agree with "Tom's way of building a business".  And later in the interview, he ties the buyback to the "one cookie now versus two cookies later" delayed gratification experiment making it sound like he thinks the buyback program is too early and should've been delayed. 

 

I'd love to ask him what he meant there, because clearly his traditional way of building a business is pretty similar to what CHTR is doing. The levered free-cash-flow playbook was basically perfected by Malone at TCI and he's been supporting it at other companies he controls. So I'm curious what's the difference.

 

My own opinion is that Malone knows they stretched to acquire the Time-Warner and Newhouse cable franchises and would've preferred debt reduction first (two cookies later) vs buybacks (one cookie now).

 

I don't really see it. They were never much above their target level because of the way the deal was structured, and the fact that Rutledge could do such a huge buyback while staying within range shows that they didn't have too much debt but rather that they were falling below their target 4-4.5x otherwise (which is around where Malone has traditionally liked it).

 

As for Charter having balance sheet capacity to be flexible, I think they can pretty easily do almost any deal they want considering what is available. It's not like there's a huge cable company for sale right now or they could merge with comcast, so whatever comes will be much smaller deals that they could easily do (probably the alaska assets someday that Malone also controls through Gliba?).

 

Maybe there could be a deal with some content, but that doesn't seem to be the plan right now, and the small "free radicals" are probably in difficult positions if they don't merge with huge players to get scale (and CHTR wouldn't give them that on the content side), and the big players are too big for CHTR to swallow anyway.

[Liberty]

One thing to consider with pushing Verizon to get more aggressive is that past a certain point, you're shooting yourself in the foot. If you get them to pay a ton but they mostly do it in stock, you end up holding a crapload of stock that just overpaid for an asset so probably isn't going to get a great return on it. Would you rather own stock in the patsie that overpaid, or just keep your pure-play cable asset that is about to turn the corner on integration and gush FCF after years of hard work? You can always sell later if you really need to, but Malone made the mistake once of getting stuck with a ton of stock in the company that acquired him without him having control (when AT&T bought TCI at the top for a crazy price and then the stock tanked while Malone couldn't sell) and I think he'll think twice about it the next time.

[Jurgis]

One thing to consider with pushing Verizon to get more aggressive is that past a certain point, you're shooting yourself in the foot. If you get them to pay a ton but they mostly do it in stock, you end up holding a crapload of stock that just overpaid for an asset so probably isn't going to get a great return on it. Would you rather own stock in the patsie that overpaid, or just keep your pure-play cable asset that is about to turn the corner on integration and gush FCF after years of hard work? You can always sell later if you really need to, but Malone made the mistake once of getting stuck with a ton of stock in the company that acquired him without him having control (when AT&T bought TCI at the top for a crazy price and then the stock tanked while Malone couldn't sell) and I think he'll think twice about it the next time.

 

Didn't this also happen with LILA/CWC? Most people on CoBF claim that Malone screwed LILA shareholders by selling CWC at inflated price. But he took LILA shares in the merger and those are down hugely since then (possibly at least partially because of inflated CWC price).

[Spekulatius]

One thing to consider with pushing Verizon to get more aggressive is that past a certain point, you're shooting yourself in the foot. If you get them to pay a ton but they mostly do it in stock, you end up holding a crapload of stock that just overpaid for an asset so probably isn't going to get a great return on it. Would you rather own stock in the patsie that overpaid, or just keep your pure-play cable asset that is about to turn the corner on integration and gush FCF after years of hard work? You can always sell later if you really need to, but Malone made the mistake once of getting stuck with a ton of stock in the company that acquired him without him having control (when AT&T bought TCI at the top for a crazy price and then the stock tanked while Malone couldn't sell) and I think he'll think twice about it the next time.

 

Didn't this also happen with LILA/CWC? Most people on CoBF claim that Malone screwed LILA shareholders by selling CWC at inflated price. But he took LILA shares in the merger and those are down hugely since then (possibly at least partially because of inflated CWC price).

 

Yes, that is correct, but he would have lost a bit more when he just held on CWC. Malone has a way to keep the gain when a purchase works out and share the pain, when it does not. I think this is part of reason why he outperforms.

[Liberty]

One thing to consider with pushing Verizon to get more aggressive is that past a certain point, you're shooting yourself in the foot. If you get them to pay a ton but they mostly do it in stock, you end up holding a crapload of stock that just overpaid for an asset so probably isn't going to get a great return on it. Would you rather own stock in the patsie that overpaid, or just keep your pure-play cable asset that is about to turn the corner on integration and gush FCF after years of hard work? You can always sell later if you really need to, but Malone made the mistake once of getting stuck with a ton of stock in the company that acquired him without him having control (when AT&T bought TCI at the top for a crazy price and then the stock tanked while Malone couldn't sell) and I think he'll think twice about it the next time.

 

Didn't this also happen with LILA/CWC? Most people on CoBF claim that Malone screwed LILA shareholders by selling CWC at inflated price. But he took LILA shares in the merger and those are down hugely since then (possibly at least partially because of inflated CWC price).

 

Yeah, that's why people think the CWC assets (undersea fibers and such) are being undervalued by the market. Time will tell, I guess. Or maybe Malone just made a mistake.

[vince]

One thing to consider with pushing Verizon to get more aggressive is that past a certain point, you're shooting yourself in the foot. If you get them to pay a ton but they mostly do it in stock, you end up holding a crapload of stock that just overpaid for an asset so probably isn't going to get a great return on it. Would you rather own stock in the patsie that overpaid, or just keep your pure-play cable asset that is about to turn the corner on integration and gush FCF after years of hard work? You can always sell later if you really need to, but Malone made the mistake once of getting stuck with a ton of stock in the company that acquired him without him having control (when AT&T bought TCI at the top for a crazy price and then the stock tanked while Malone couldn't sell) and I think he'll think twice about it the next time.

 

 

Didn't this also happen with LILA/CWC? Most people on CoBF claim that Malone screwed LILA shareholders by selling CWC at inflated price. But he took LILA shares in the merger and those are down hugely since then (possibly at least partially because of inflated CWC price).

 

Yeah, that's why people think the CWC assets (undersea fibers and such) are being undervalued by the market. Time will tell, I guess. Or maybe Malone just made a mistake.

[KJP]

I have found the comparisons between Charter and Comcast useful in thinking about what Charter's financials could look like a few years down the line.  Here's an update on that topic from someone with a similar viewpoint:  http://yetanothervalueblog.com/2019/02/chtr-earnings-were-nice-but-its-still-way-too-cheap.html

[Munger_Disciple]

Liberty,

 

KJP posted the same link in the prior post.

 

-MD

[walkie518]

I have found the comparisons between Charter and Comcast useful in thinking about what Charter's financials could look like a few years down the line.  Here's an update on that topic from someone with a similar viewpoint:  http://yetanothervalueblog.com/2019/02/chtr-earnings-were-nice-but-its-still-way-too-cheap.html

I don't understand the market selling off CHTR since the spike...maybe short-termism has taken hold for now?

 

I would think sideways movement would be more likely, unless the spike is being used for another purpose...perhaps they stopped buy backs in anticipation that price declines will help get better shareholder value?