LBRDA - Liberty Broadband

[ItsAValueTrap]

http://www.multichannel.com/news/policy/charter-files-application-twc-merger/391690

 

Charter has filed its application with the Federal Communications Commission to buy Time Warner Cable.  The application includes a public interest statement with promises to go beyond the FCC's new Open Internet rules by agreeing to a legally enforceable condition that the combined company, which it dubs "New Charter," will not impose data caps or usage-based billing, neither of which it currently engages in, Charter noted.

 

That's surprising. I thought this was one of the things Malone said was inevitable.

 

Here in Canada, Teksavvy implements peak-hour throttling.  The real cost of delivering broadband is the capex cost of capacity.  Capacity is only an issue for peak hours.  Peak-hour throttling comes somewhat close to mimicking what it costs to provide Internet.  (It's actually a little more complicated than that.  The cost of congested routes and long routes cost more than very short routes to something like Netflix.  And the cost depends on the imbalance between sending and receiving traffic, so data to a Netflix content delivery server will cost very little.)

 

So in theory they have other options for implementing something that does the same thing as usage-based billing.

[Munger_Disciple]

What is the advantage of investing in Liberty broadband when you can directly buy Charter? It seems like a more expensive way to buy Charter stock (due to the frictional management costs).

[wbr]

What is the advantage of investing in Liberty broadband when you can directly buy Charter? It seems like a more expensive way to buy Charter stock (due to the frictional management costs).

 

You can buy Broadband at a discount to NAV. I think it is likely that at some point over the next three to four years CHTR will merge with Broadband paying in Charter shares which will essentially eliminate the NAV discount. Also Broadband has some low cost leverage so if you are convinced that CHTR is a good investment this might be attractive.

 

Additionally Malone is known to make some good deals. Back on March 31st it was announced that Charter would buy Bright House and Broadband would provide capital by buying new Charter shares for $173 with the money from the rights offering. Charter shares closed that day over $190. Ofc now the stock has come back down between merger arbs shorting and the usual market fluctuation, but the point is: At the time of such a transaction announcement you are already up 10%+ on those new shares that are being bought with your proportional amount of cash in Liberty Broadband, because you can buy at a discount to the market and then the market pops on top of that because Malone cable deals are generally favorable.

[folivera13]

Good move by Charter: http://www.wired.com/2015/06/heres-charter-will-commit-open-internet/

 

[Jurgis]

Good move by Charter: http://www.wired.com/2015/06/heres-charter-will-commit-open-internet/

 

Yes. +1

[Munger_Disciple]

You can buy Broadband at a discount to NAV.

 

It is true that it trades at a discount to NAV, but at least some discount is justified in my opinion due an additional layer of corporate expenses.

[Liberty]

http://www.sec.gov/Archives/edgar/data/1091667/000119312515236330/d948531dprem14a.htm#toc933267_43

[nielfiel]

http://www.sec.gov/Archives/edgar/data/1091667/000119312515236330/d948531dprem14a.htm#toc933267_43

 

I believed this to be the case prior to this filing, but reading through the transaction background I'm further convinced, Altice was never actually going to bid for TWC.  They simply wanted Charter to pay more than full price for TWC and limit Charter's ability, however small, in competing for future CableCo's.  Damn you Altice!

[Munger_Disciple]

They simply wanted Charter to pay more than full price for TWC and limit Charter's ability, however small, in competing for future CableCo's.

 

It also increases the acquisition prices of Altice's targets, so it does not seem like an effective strategy. For instance Altice paid full price for Suddenlink (almost 10 times EBITDA and no benefit from synergies since Altice does not own any other US Cable cos).

[Liberty]

They simply wanted Charter to pay more than full price for TWC and limit Charter's ability, however small, in competing for future CableCo's.

 

It also increases the acquisition prices of Altice's targets, so it does not seem like an effective strategy. For instance Altice paid full price for Suddenlink (almost 10 times EBITDA and no benefit from synergies since Altice does not own any other US Cable cos).

 

Altice doesn't seem like a very rational player to me, which makes them extra dangerous.

[Liberty]

I am not so sure it was Altice that was irrational here. In buying Suddenlink they used an inflated equity (11x EV/EBITDA) so less synergy was needed. And they didn't put in the high bid and overpay for TWC. That strikes me as very rational and measured. Ambitious maybe, but not stupid.

 

I wasn't talking specifically about Suddenlink. They seem to be doing lots of questionable things, but maybe it'll all work out for them in the end. I just know that I'm more comfortable with Malone/Rutledge's more measured and systematic approach.

[loganc]

I am not so sure it was Altice that was irrational here. In buying Suddenlink they used an inflated equity (11x EV/EBITDA) so less synergy was needed. And they didn't put in the high bid and overpay for TWC. That strikes me as very rational and measured. Ambitious maybe, but not stupid.

 

How do you figure that they used an inflated equity?  The deal was 6.7B new and existing debt, 500MM vendor loan, and 1.2B cash.

[Liberty]

Altice looks a lot like the old TCI to me. What questionable things have you noticed?

 

I probably shouldn't comment, as I've mostly been watching Altice from afar and I'm not familiar enough with them. But from what I've seen, they seem less disciplined and more scattered than I would like. TCI stayed away from glamor assets (ie. out of cities for a long time), waiting to pick things up in downturns, built relationships in the industry and grew content assets organically via partnerships/joint-ventures, etc. Drahi certainly has read the Malone playbook, so that help, but I haven't really seen too much that made me excited about his approach yet. Kind of like on paper Endo is a smaller Valeant, but in practice I don't find the management or the assets as good. But I could be wrong...

[Liberty]

CHTR credit roadshow (thanks Bluegrass Capital):

 

https://www.sec.gov/Archives/edgar/data/1091667/000109166715000155/igseniornotesnetroadshow.htm

[ni-co]

Altice looks a lot like the old TCI to me. What questionable things have you noticed?

 

I probably shouldn't comment, as I've mostly been watching Altice from afar and I'm not familiar enough with them. But from what I've seen, they seem less disciplined and more scattered than I would like. TCI stayed away from glamor assets (ie. out of cities for a long time), waiting to pick things up in downturns, built relationships in the industry and grew content assets organically via partnerships/joint-ventures, etc. Drahi certainly has read the Malone playbook, so that help, but I haven't really seen too much that made me excited about his approach yet. Kind of like on paper Endo is a smaller Valeant, but in practice I don't find the management or the assets as good. But I could be wrong...

 

I found very interesting what Malone had to say about Drahi at the shareholder meeting. He clearly considers him a genius for taking advantage of cheap money and doing the roll-up. It was clear, however, that Malone also considers this a temporary phenomenon of too much cheap money (he ended with: "You know, when that kind of money is around why not go to Las Vegas?"). He also said that the cash flows would support Altice's debt but that Drahi's ultimate interest isn't the performance of his stock price but ownership/control over the assets he's been accumulating.

[Liberty]

Altice looks a lot like the old TCI to me. What questionable things have you noticed?

 

I probably shouldn't comment, as I've mostly been watching Altice from afar and I'm not familiar enough with them. But from what I've seen, they seem less disciplined and more scattered than I would like. TCI stayed away from glamor assets (ie. out of cities for a long time), waiting to pick things up in downturns, built relationships in the industry and grew content assets organically via partnerships/joint-ventures, etc. Drahi certainly has read the Malone playbook, so that help, but I haven't really seen too much that made me excited about his approach yet. Kind of like on paper Endo is a smaller Valeant, but in practice I don't find the management or the assets as good. But I could be wrong...

 

I found very interesting what Malone had to say about Drahi at the shareholder meeting. He clearly considers him a genius for taking advantage of cheap money and doing the roll-up. It was clear, however, that Malone also considers this a temporary phenomenon of too much cheap money (he ended with: "You know, when that kind of money is around why not go to Las Vegas?"). He also said that the cash flows would support Altice's debt but that Drahi's ultimate interest isn't the performance of his stock price but ownership/control over the assets he's been accumulating.

 

At first that's how I interpreted it too, but someone on twitter made a good case to me that he was being ironic, so now I'm not so sure anymore.

[ni-co]

Altice looks a lot like the old TCI to me. What questionable things have you noticed?

 

I probably shouldn't comment, as I've mostly been watching Altice from afar and I'm not familiar enough with them. But from what I've seen, they seem less disciplined and more scattered than I would like. TCI stayed away from glamor assets (ie. out of cities for a long time), waiting to pick things up in downturns, built relationships in the industry and grew content assets organically via partnerships/joint-ventures, etc. Drahi certainly has read the Malone playbook, so that help, but I haven't really seen too much that made me excited about his approach yet. Kind of like on paper Endo is a smaller Valeant, but in practice I don't find the management or the assets as good. But I could be wrong...

 

I found very interesting what Malone had to say about Drahi at the shareholder meeting. He clearly considers him a genius for taking advantage of cheap money and doing the roll-up. It was clear, however, that Malone also considers this a temporary phenomenon of too much cheap money (he ended with: "You know, when that kind of money is around why not go to Las Vegas?"). He also said that the cash flows would support Altice's debt but that Drahi's ultimate interest isn't the performance of his stock price but ownership/control over the assets he's been accumulating.

 

At first that's how I interpreted it too, but someone on twitter made a good case to me that he was being ironic, so now I'm not so sure anymore.

 

I don't think it was irony. However, what I read between the lines is that Malone thought it was a very risky (too much leverage, even for his taste).

[Liberty]

Cheap money coming in:

 

http://www.bloomberg.com/news/articles/2015-07-09/charter-planning-six-part-bond-offering-for-time-warner-takeover

[folivera13]

Great insight on Altice: http://www.wsj.com/articles/little-known-french-billionaire-circles-u-s-cable-market-1436495497

[Liberty]

http://www.bloomberg.com/news/articles/2015-07-15/netflix-will-support-charter-acquisition-of-time-warner-cable

[fa21212]

Thanks for posting Liberty, great article.

[folivera13]

"The Charter/TWC transaction, with this condition, would deliver significant public interest benefits to broadband consumers, and we urge its timely approval."

 

See page 4 section on Net Neutrality: http://files.shareholder.com/downloads/NFLX/198803224x0x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf

[Liberty]

Cogent writing to the FCC to support CHTR-TWC merger:

 

http://apps.fcc.gov/ecfs/comment/view?id=60001093410

 

:)

 

And looks like Lone Pine Capital (Stephen Mandel) doubled its CHTR position:

 

http://www.sec.gov/Archives/edgar/data/1061165/000090266415003096/p15-1589sc13g.htm

 

[Liberty]

Overview of the Malone cable and media empire, covers many of his companies (not just LBRDA):

 

http://www.jnvestor.com/malone/

[giofranchi]

Overview of the Malone cable and media empire, covers many of his companies (not just LBRDA):

 

http://www.jnvestor.com/malone/

 

Very good post! :)

 

How do you think the cable industry today compares to the pharma industry (VRX), the aerospace industry (TDG), or the software industry (CSU)? Don’t you think it lacks the predictability those other businesses enjoy instead?

 

Thank you,

 

Gio