LILA - Liberty Global Latin America tracker

[rogermunibond]

OTOH FCC commits funding to harden telecom assets in PR and USVI

 

https://www.rcrwireless.com/20190927/wireless/fcc-funding-pr-u-virgin-islands

[rogermunibond]

Net debt probably goes from $6,117 to $8,067

 

Ebitda 19E goes from $1,521 to $1,850(?)

 

So moving from 3.9x to 4.36x net debt/ebitda

[dwy000]

Net debt probably goes from $6,117 to $8,067

 

Ebitda 19E goes from $1,521 to $1,850(?)

 

So moving from 3.9x to 4.36x net debt/ebitda

 

It appeared the company was thinking $2.2bn in overall price including fees and expenses.  But OCF could be higher once you layer in synergies.

 

Either way, combining the #1 wireless and #1 broadband player is great strategic fit and sets up well for Medium to long term. 

[Foreign Tuffett]

While my initial impression of this deal was negative, I have changed my mind:

 

Late September 2018 - Hurricane Maria hits Puerto Rico, causing massive damage

 

10/2018 - LILA acquires 40% minority stake in Liberty Puerto Rico for 9.5 million LILAK shares. This gives it full ownership of Liberty Puerto Rico

 

7/2019 - Reuters reports that AT&T, which is looking to reduce its massive debt load, has put its Puerto Rico operations up for sale for ~$3 billion. 

 

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

 

Today - LILA is acquiring AT&T's Puerto Rico operations for $1.95 billion. Once the transaction closes LILA will be #1 in mobile and #1 in cable/fixed on the island. 

 

 

I think LILA is being opportunistic in assembling a dominant position in Puerto Rico at attractive prices

[Value92]

The hard work was done years ago by Mauricio and Erik by putting together the fixed asset spanning the entire island. The addition of the mobile network is the logical conclusion. Great work set up years in advance!

[maybe4less]

While my initial impression of this deal was negative, I have changed my mind:

 

Late September 2018 - Hurricane Maria hits Puerto Rico, causing massive damage

 

10/2018 - LILA acquires 40% minority stake in Liberty Puerto Rico for 9.5 million LILAK shares. This gives it full ownership of Liberty Puerto Rico

 

7/2019 - Reuters reports that AT&T, which is looking to reduce its massive debt load, has put its Puerto Rico operations up for sale for ~$3 billion. 

 

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

 

Today - LILA is acquiring AT&T's Puerto Rico operations for $1.95 billion. Once the transaction closes LILA will be #1 in mobile and #1 in cable/fixed on the island. 

 

 

I think LILA is being opportunistic in assembling a dominant position in Puerto Rico at attractive prices

 

Absolutely, LILA is going to have the only quad-play on the island and is going to dominate the market. AT&T was basically a price insensitive seller and LILA was apparently the only buyer. The other mobile networks were unlikely to get through anti-trust review and it looks like speculation that PE or infrastructure buyers would show up was incorrect.

[rogermunibond]

Quad play doesn't mean much to consumers anymore.

 

It's back to a double play (high-speed broadband and wireless).  With those two converging as well.

[Munger_Disciple]

After the AT&T deal is completed, the logical next step is a LILA + Millicom combination.

[dwy000]

After the AT&T deal is completed, the logical next step is a LILA + Millicom combination.

 

Without additional equity this might take TIGO off the table for next couple of years.  Paying in LILAC stock at $17 doesnt hold much appeal and they are tapped out in leverage until they bring it down from this acquisition.

[Munger_Disciple]

 

Without additional equity this might take TIGO off the table for next couple of years.  Paying in LILAC stock at $17 doesnt hold much appeal and they are tapped out in leverage until they bring it down from this acquisition.

 

I agree but Malone can always conjure something up out of thin air, like he did with Charter stake by attracting private investors. Also there is a possibility that Liberty Global (with a lot of dry powder) could play a role.

[HalfMeasure]

 

Without additional equity this might take TIGO off the table for next couple of years.  Paying in LILAC stock at $17 doesnt hold much appeal and they are tapped out in leverage until they bring it down from this acquisition.

 

I agree but Malone can always conjure something up out of thin air, like he did with Charter stake by attracting private investors. Also there is a possibility that Liberty Global (with a lot of dry powder) could play a role.

 

I think this deal will take less cash than people realize. $1.95bln is the EV they're paying at ~6.5x EBITDA => EBITDA ~$300mln => at 4.5x leverage there is $1.35bln in debt capacity on the asset => the equity cheque they need to write is ~$600mln. At 4.1x net leverage last Q and $1.525bln in EBITDA expected for the year, $600mln in incremental debt takes LILA to almost exactly 4.5x net leverage. Add in that they've likely generated some cash in Q3, and will continue to generate cash into the close of this deal. This is the beauty of the model if they're buying assets at ~6x and levering to ~4-4.5x. If a really attractively priced deal came along, I think they would be willing to push above 4.5x net as well.

[Spekulatius]

 

Without additional equity this might take TIGO off the table for next couple of years.  Paying in LILAC stock at $17 doesnt hold much appeal and they are tapped out in leverage until they bring it down from this acquisition.

 

I agree but Malone can always conjure something up out of thin air, like he did with Charter stake by attracting private investors. Also there is a possibility that Liberty Global (with a lot of dry powder) could play a role.

 

I think this is a great deal for LILA, especially with some synergies in Puerto Rico that they should be able to realize. I would be careful about Malone swooping in as this could very well result in more shareholder fleecing.

[HalfMeasure]

I think this is a great deal for LILA, especially with some synergies in Puerto Rico that they should be able to realize. I would be careful about Malone swooping in as this could very well result in more shareholder fleecing.

 

The synergies in PR are very compelling, but I wonder how much we will get a sense for. Cross-selling between wireless/broadband customers and churn reduction might be harder to quantify in the short-term vs. just vanilla cost synergies.

[maybe4less]

Quad play doesn't mean much to consumers anymore.

 

It's back to a double play (high-speed broadband and wireless).  With those two converging as well.

 

Sure, whether someone wants a quad, a triple, or a double, the point is still the same: no other competitor has a high speed fixed connection and a mobile offering.

[maybe4less]

I think this is a great deal for LILA, especially with some synergies in Puerto Rico that they should be able to realize. I would be careful about Malone swooping in as this could very well result in more shareholder fleecing.

 

The synergies in PR are very compelling, but I wonder how much we will get a sense for. Cross-selling between wireless/broadband customers and churn reduction might be harder to quantify in the short-term vs. just vanilla cost synergies.

 

I suspect they will give us some guidance soon, probably on the earnings call. In addition to cross-selling/churn reduction, IR pointed out cost synergy buckets of "(i) Network synergies – migrating from AT&T systems and support, (ii) SG&A – consolidation of the two businesses, [and] (iii) Subsea – moving to our network over time."

[Munger_Disciple]

I would be careful about Malone swooping in as this could very well result in more shareholder fleecing.

 

This always has been a concern with Malone. He is always for himself; minority shareholders need to be careful that his interests are not against theirs. The trouble is that sometimes it is hard to tell which side he is on. I wish he were more like Buffett.

[netnet]

LILA announced a share repurchase plan today (March 17th).

[alwaysinvert]

I guess nobody will care at all but I think LILA is interesting here.

 

- Wednesday after close they bought Telefonica Costa Rica for $500m (the deal Tigo backed out of at a somewhat higher price). This also explains why they have been timid with buybacks.

- Yesterday before US market open Tigo reported decent numbers, issued some cautiously optimistic statements and the stock ran +5-7%

 

These two things together implies that Q2 and beyond has a good chance of being pretty good for LILA. Yet LILA opened DOWN yesterday (has traded up somewhat since but is still essentially flat since the big drawdown).

 

Additionally:

 

- America Movil also reported strong Latam numbers under the circumstances

- VTR issued notes a month ago which lowered their cost of capital and extended their maturities: https://www.businesswire.com/news/home/20200702005104/en/VTR-Completes-Issuance-1.15-Bn-New-Notes

- Likewise Tigo's Luxembourg listed bonds are now priced the same as pre-covid.

 

What exactly is the rational reason why LILA has not had any discernible bounceback in the equity at this point? Maybe they will report a giant stinker and have a horrible rest of 2020, but if so how much sense does it make to do a completely optional $500m acquisition when you are already more levered than all your peers? I interpret it as a huge signal that management thinks all will be well and they are exiting cash preservation mode. The market is yawning and maybe management has earned that response, but I suspect there is informational value there.

[ratiman]

It's funny how this was going to take over the world a few years and now it's crickets. Does anyone have an idea what the valuation looks like after the AT&T and Costa Rica deals? I have something like $1450 ebitda on the current business, $300 for AT&T, and $75 for Costa Rica. Conservatively that's $1825 with $9B debt. At 6x the valuation on 190M shares would be $10.

[alwaysinvert]

Rights offering: https://www.businesswire.com/news/home/20200805006037/en/

[Foreign Tuffett]

It's funny how this was going to take over the world a few years and now it's crickets. Does anyone have an idea what the valuation looks like after the AT&T and Costa Rica deals? I have something like $1450 ebitda on the current business, $300 for AT&T, and $75 for Costa Rica. Conservatively that's $1825 with $9B debt. At 6x the valuation on 190M shares would be $10.

 

The debt load makes it tough for me to get excited about this. I also think it is an exceptionally difficult company to understand.

[Munger_Disciple]

One problem I have with LILA's financials is that they make it extremely difficult (almost impossible) to estimate the pro-rata net debt and pro-rata EBITDA attributable to LILA shareholders (sub-divisions of LILA have minority interests). The opaqueness is by design I suspect. Millicom (unlike LILA) does a terrific job of providing this valuable information which makes it straight forward to value the company. Raising additional equity at quite a low valuation seems weird but I guess they have no other choice if they want to do the deal. It is incumbent upon the management to at least explain why Telefonica is such an awesome deal.

[NotSoWise]

It supposed to be an all cash deal, but recently they realized that things were worse (Q2 results) and will take longer to recover. Without additional money they could potentially breach covenants (OCF decline, acquisition costs, more debt) and were short cash to close. Buying a mobile at ~7x pre synergies and issuing stock at low bottom valuation would not make it a good return deal. Strategically makes sense, but return wise its not great.

 

So far they did possibly one good deal (AT&T) and rather two mediocre (C&W - Malone forced, Costa Rica).

 

"Funny" thing was announcing buybacks (not buying back anything) and then right after issuing stock.

 

All the above put some question marks on CEO competency. The sooner they merge with TIGO the better - so TIGO CEO could take over (subject to valuation).

 

 

[alwaysinvert]

It supposed to be an all cash deal, but recently they realized that things were worse (Q2 results) and will take longer to recover. Without additional money they could potentially breach covenants (OCF decline, acquisition costs, more debt) and were short cash to close. Buying a mobile at ~7x pre synergies and issuing stock at low bottom valuation would not make it a good return deal. Strategically makes sense, but return wise its not great.

 

So far they did possibly one good deal (AT&T) and rather two mediocre (C&W - Malone forced, Costa Rica).

 

"Funny" thing was announcing buybacks (not buying back anything) and then right after issuing stock.

 

All the above put some question marks on CEO competency. The sooner they merge with TIGO the better - so TIGO CEO could take over (subject to valuation).

 

The Costa Rica deal was finalized a week ago - I think they would have had a pretty good idea what Q2 results were by then. I suspect that insiders (who have committed to taking their pro rata shares) want to buy more stock at current prices and the deal structure makes sense for that reason even if the deal is value neutral to the company.

 

What would make further sense if Tigo-LILA is not happening soon would be for them to swap their Panama and Costa Rica assets.

[NotSoWise]

Agree re Malone/ Zinterhofer - expect them to oversubscribe significantly to buy at some USD 6-7, 25% discount after price drops to USD 8-9. Last time Zinterhofer was adding between USD 15-18, so would want to average down, Malone even more so.

 

As for TIGO-LILA, I think its inevitable given obvious reasons, just hard to say when.

Would there be any willing buyer for the merged entity - i.e. some LATAM champion or else? Just wonder if there would be any exit premium at some point...

 

As for CR deal - EV500 at ~7x pre synergies, at 4x debt, so 3x or USD 210m from CF/ other sources - they wrote debt/ and/or equity in press release. So why do they need USD 350m? Lets say some USD 100-200m for CR and the remaining -150-250m? I thought more about this stock issue. One thing is to issue stock at low price (high value) and then swap for a stock with high price (low value) (e.g. merger) - clearly you destroy value. Another is to ask all shareholders for more money pro-rata to their shareholding to do a deal/ M&A. In such situation, shareholders who oversubscribed gain more value, at the expense of the ones who didnt.

 

Do you guys know what is the average value-wise % of current shareholders to subscribe RI?