LILA - Liberty Global Latin America tracker

[Spekulatius]

 

down a fair amount today ... pricing could be compelling though not sure where or how to price

 

presentation: http://www.lla.com/PDF/presentations/LLA-Q1-2019-Investor-Call-Presentation.pdf

 

what I don't understand is why Liberty Global, for example, opted to sell all assets and concentrate regionally while LILA seems to be expanding its reach...

 

even looking at Charter's assets, these services tend to be regional duopolies with marginal scale outside of the foothold?

 

Maybe LBTY is very cheap here, maybe British competition is fierce ... Maybe LILA is cheap here but deserves a discount to more geographically concentrated players of scale like Charter?  If so, how much to own small, regional monopolies?  I suppose content licensing can be shared across regions in a single deal?

 

walkie, you have mistakenly posted a link to a fashion magazine. This is one of the most annoying things I have ever seen.

 

LILA isn’t a pure cable company. The C&W assets are of lower quality and this acquisition was a real dog, where Malone stuck it to the bagholders.

[meiroy]

 

down a fair amount today ... pricing could be compelling though not sure where or how to price

 

presentation: http://www.lla.com/PDF/presentations/LLA-Q1-2019-Investor-Call-Presentation.pdf

 

what I don't understand is why Liberty Global, for example, opted to sell all assets and concentrate regionally while LILA seems to be expanding its reach...

 

even looking at Charter's assets, these services tend to be regional duopolies with marginal scale outside of the foothold?

 

Maybe LBTY is very cheap here, maybe British competition is fierce ... Maybe LILA is cheap here but deserves a discount to more geographically concentrated players of scale like Charter?  If so, how much to own small, regional monopolies?  I suppose content licensing can be shared across regions in a single deal?

 

walkie, you have mistakenly posted a link to a fashion magazine. This is one of the most annoying things I have ever seen.

 

LILA isn’t a pure cable company. The C&W assets are of lower quality and this acquisition was a real dog, where Malone stuck it to the bagholders.

 

From an investor's point of view, is there a big difference between a legal scam and an illegal scam?

[WayWardCloud]

One thing that surprised me was to read that LILA offers connections >200mbps to most users while Millicom says even though its user base accesses broadband over a very capable HFC network the plans still average only 5-10mbps simply because demand is not there yet and Millicom wants to keep a large runaway to up-sale in the future. Are the two companies really offering that much of a different product quality? Is Millicom operating in less developed countries? Can't quite put those two numbers together in my head given that the two companies seem pretty comparable otherwise.

 

By the way I don't see why the shares are being slammed... Seems like a pretty boring/normal quarter report to me. They're executing in line with guidance and things are starting to look better although there's obviously still lots of work ahead. Am I missing something? What did people expect?

[Spekulatius]

One thing that surprised me was to read that LILA offers connections >200mbps to most users while Millicom says even though its user base accesses broadband over a very capable HFC network the plans still average only 5-10mbps simply because demand is not there yet and Millicom wants to keep a large runaway to up-sale in the future. Are the two companies really offering that much of a different product quality? Is Millicom operating in less developed countries? Can't quite put those two numbers together in my head given that the two companies seem pretty comparable otherwise.

 

By the way I don't see why the shares are being slammed... Seems like a pretty boring/normal quarter report to me. They're executing in line with guidance and things are starting to look better although there's obviously still lots of work ahead. Am I missing something? What did people expect?

 

The report seems OK and in particular, I noticed that FCF is finally better.  However, just eyeballing the numbers, it is clear that C&W is a dog and most likely a slowly melting ice cube.

 

When you look at the big picture, it seems that the sharecount is rising faster than revenues, so it’s not clear that value is created though these acquisitions.

[rogermunibond]

C&W will probably improve.  I think the issue is that triple play or quad play is less and less appealing and mobile competition is high.  But for single play - high speed broadband - there's not much choice.

 

The sooner cablecos follow the CABO model, probably the better.

[Value92]

Unlike the LILA/CWC deal, Malone is not involved in Millicom. He owned the super voting shares of Liberty Global which negotiated the deal with CWC where he also owned a big chunk of the stock.

 

Millicom on the other hand is controlled by the Stenbeck family and CEO Mauricio Ramos is an outstanding manager (far superior to LILA management in my opinion). Ramos ran Liberty Chilean operations before becoming CEO of Millicom in 2015. So they understand the Malone playbook and any deal is likely to be fair to Millicom shareholders.

 

No, annual churn on quad play household bundles in Europe is 3% - it’s worth it from a CLV perspective. CABO isn’t doing it as they are subscale and get worse contract terms than the big guys.

[Liberty]

https://www.reuters.com/article/us-at-t-divestiture-puertorico-idUSKCN1UD30O

[meiroy]

 

What's one more dilution between friends.

 

[HalfMeasure]

https://www.reuters.com/article/us-at-t-divestiture-puertorico-idUSKCN1UD30O

 

Any opinions on how this might play out vis-a-vis LILA?

[Liberty]

https://www.reuters.com/article/us-at-t-divestiture-puertorico-idUSKCN1UD30O

 

Any opinions on how this might play out vis-a-vis LILA?

 

None. I haven't really followed this company for a few years.

[maybe4less]

https://www.reuters.com/article/us-at-t-divestiture-puertorico-idUSKCN1UD30O

 

Any opinions on how this might play out vis-a-vis LILA?

 

Seems like LILA is the only realistic acquirer. Unlikely one of the other three mobile operators on the island would be allowed to buy this and LILA is the only other company who could get synergies. Potentially PE might be interested, but they would have to pay a really dumb price to outbid LILA.

 

My guess is this dynamic allows LILA to pay an attractive price if they buy it. The AT&T team seems to have a mandate to "just sell something," so they may not be that price sensitive.

 

The mention of private equity firms in the article suggests to me that LILA might be looking at financing this with a PE firm like Searchlight. Searchlight and LILA could form a JV to buy this since it would be a pretty big acquisition for LILA alone.

 

 

[Spekulatius]

https://www.reuters.com/article/us-at-t-divestiture-puertorico-idUSKCN1UD30O

 

Any opinions on how this might play out vis-a-vis LILA?

 

Seems like LILA is the only realistic acquirer. Unlikely one of the other three mobile operators on the island would be allowed to buy this and LILA is the only other company who could get synergies. Potentially PE might be interested, but they would have to pay a really dumb price to outbid LILA.

 

My guess is this dynamic allows LILA to pay an attractive price if they buy it. The AT&T team seems to have a mandate to "just sell something," so they may not be that price sensitive.

 

The mention of private equity firms in the article suggests to me that LILA might be looking at financing this with a PE firm like Searchlight. Searchlight and LILA could form a JV to buy this since it would be a pretty big acquisition for LILA alone.

 

I don’t think Lila is the likely acquirer here. The price for ATT’s assets imply a valuation of 10x EBITDA while LILA trades at ~7x EBITDA. Even with synergies, LILA can not compete. I think there will be plenty of acquirers for cash generating assets like ATT’s. Also, LILA may have trouble with Antitrust, because they own already cable assets in Puerto Rico. My bet would be on private equity or a infrastructure investor like Brookfield.

[maybe4less]

https://www.reuters.com/article/us-at-t-divestiture-puertorico-idUSKCN1UD30O

 

Any opinions on how this might play out vis-a-vis LILA?

 

Seems like LILA is the only realistic acquirer. Unlikely one of the other three mobile operators on the island would be allowed to buy this and LILA is the only other company who could get synergies. Potentially PE might be interested, but they would have to pay a really dumb price to outbid LILA.

 

My guess is this dynamic allows LILA to pay an attractive price if they buy it. The AT&T team seems to have a mandate to "just sell something," so they may not be that price sensitive.

 

The mention of private equity firms in the article suggests to me that LILA might be looking at financing this with a PE firm like Searchlight. Searchlight and LILA could form a JV to buy this since it would be a pretty big acquisition for LILA alone.

 

I don’t think Lila is the likely acquirer here. The price for ATT’s assets imply a valuation of 10x EBITDA while LILA trades at ~7x EBITDA. Even with synergies, LILA can not compete. I think there will be plenty of acquirers for cash generating assets like ATT’s. Also, LILA may have trouble with Antitrust, because they own already cable assets in Puerto Rico. My bet would be on private equity or a infrastructure investor like Brookfield.

 

Agreed that it seems like a high price for LILA to pay. It occurs to me that that trailing EBITDA number at ATT might be depressed due to Hurricane Maria. In which case, $3B might not be such a high valuation.

 

It may also be that no one is actually going to pay that price and the price might be lower. But as I said before, unless a PE firm wants to pay a dumb price, I would expect LILA to be able to get this asset for an attractive price (assuming anti-trust allows it). Mobile is a pretty terrible business and there are 3 other operators on the island. This isn't some stable infrastructure asset. Nonetheless, PE may very well want to pay a dumb price.

 

FWIW, when asked if ATT's asset was attractive at all to LILA or if they didn't want anything to do with it, IR at LILA said that they can't comment.

[meiroy]

 

hmm Q2 is not a complete shit for a change. 

 

[maybe4less]

 

hmm Q2 is not a complete shit for a change.

 

I think this understates how positive this report was. Rebased OCF grew at 8% and importantly C&W showed good OCF growth (3%). They seemed to have stopped the bleeding in mobile subs with a second quarter of growth. FCF guidance was raised based on lower capex intensity and Puerto Rico is back to where it was pre-hurricane.

 

If you back into their confirmed OCF guidance, we should expect continued strong OCF growth at all segments in the second half (including something like 6% at CWC), especially when you adjust for the insurance/FCC proceeds received last year in Puerto Rico.

 

CWC growing OCF  I think is potentially a very big deal for the stock price.

[Spekulatius]

Funny how they fail to mention in their press release and IR presentation that their share count is up 6% YoY, which makes the growth in cash flow of 8% much less impressive. I do acknowledge that they finally turned a bit FCF positive.

 

It a crappy business that has become a bit less crappy.

[maybe4less]

Funny how they fail to mention in their press release and IR presentation that their share count is up 6% YoY, which makes the growth in cash flow of 8% much less impressive. I do acknowledge that they finally turned a bit FCF positive.

 

It a crappy business that has become a bit less crappy.

 

 

Yeah, they bought the 40% of Puerto Rico they didn't own in October for 9.5M shares. It's not like they just issued them to management. I don't really see how that makes the cash flow growth less impressive.

 

The business doesn't have to be that great for the stock to work out very well. Persistent 5% OCF growth and we are talking huge returns.

 

The bottom line for me is that C&W was clearly a worse asset than they thought when they purchased it and it's taken a lot of work to turn it around. But they have largely done it and I don't think the stock price reflects that currently.

[meiroy]

 

Right, so, you follow this situation, waiting to see if it settles down and they start to turn around and then you start a position. But, what bothers me is like you said they did a lousy capital allocation and shareholders had to pay for it.  Did they change management? Will these guys make similar capital allocations where shareholders have to foot the bill?

[maybe4less]

 

Right, so, you follow this situation, waiting to see if it settles down and they start to turn around and then you start a position. But, what bothers me is like you said they did a lousy capital allocation and shareholders had to pay for it.  Did they change management? Will these guys make similar capital allocations where shareholders have to foot the bill?

 

The do have have a new CEO, who seems way better than Mike Fries IMO. Since he's been in charge they've made 3 acquisitions and all of them have seemed pretty good.

 

They clearly made a mistake with C&W. I think C&W made things look better than they were and UK disclosure laws hampered due diligence efforts by Liberty. And there may have been some pressure to do the deal since Malone was on the other side.

 

But that is one mistake in a long history of good deals. Malone's capital allocation is legendary and, despite all the problems in Europe, Fries has a good track record of asset sales and purchases.

 

Of all the things I worry about here, capital allocation and the prospect of another C&W is not one of them.

[rogermunibond]

Plus LILA and Millicom keep circling each other.  Talk, can't decide on price/leadership and then break off.

 

Eventually.

[Value92]

Plus LILA and Millicom keep circling each other.  Talk, can't decide on price/leadership and then break off.

 

Eventually.

 

I believe it will happen one day. Ramos is on the Charter board ;)

[chesko182]

AT&T to Sell Puerto Rico and U.S. Virgin Islands Operations

Liberty Latin American to pay $1.95 billion for businesses

 

https://www.wsj.com/articles/at-t-to-sell-puerto-rico-and-u-s-virgin-islands-operations-11570624070

[Foreign Tuffett]

AT&T to Sell Puerto Rico and U.S. Virgin Islands Operations

Liberty Latin American to pay $1.95 billion for businesses

 

https://www.wsj.com/articles/at-t-to-sell-puerto-rico-and-u-s-virgin-islands-operations-11570624070

 

Where is LILA getting $2 billion dollars from? It already carries a heavy debt load.

[rogermunibond]

From the release - enough synergies to get that leverage down to below 4x?

 

Liberty Latin America intends to finance the $1.95 billion acquisition (plus fees and expenses) through a combination of $2.2 billion in borrowings on the combined Acquisition Assets and Liberty Puerto Rico (including refinancing $922.5 million in existing term loans at Liberty Puerto Rico) and the remaining approximately $750 million from Liberty Latin America’s committed liquidity of $2.0 billion at June 30, 2019. As a result of the contemplated financing, we anticipate the pro forma net leverage ratio2 of our combined Puerto Rico and U.S. Virgin Islands assets will be ~4.25x (before synergies), which results in a decline in net leverage from 4.5x as reported at June 30, 2019 for Liberty Puerto Rico.

[dwy000]

That's at Liberty Puerto Rico.  A good chunk of the cash is coming from the parent so overall leverage has to increase.  If they're buying at 6x OCF using all debt it's hard to see how overall leverage comes down unless the synergies are like half the deal value.