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LILA - Liberty Global Latin America tracker

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abitofvalue Newbie

abitofvalue

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While I am long and considering adding more, given the recent declines... One thing to consider - Malone's stake in CWC is greater $ than in LILA so if the end game is a transaction with CWC, you may not necessarily be on the same side as Malone.  That said, the stock does appear to be trading at pretty attractive multiples, if you think management is superior.

 

 

 

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muscleman Newbie

muscleman

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FYI, LILAK is trading close to 1$ above LILA. I made the switch.

 

I've been buying LILA all the way from the beginning. Never understood why LILA is either less than LILAK or is only marginally more expensive.

 

Maybe some big funds were buying this hand over feast and LILAK has much better liquidity for them to accumulate the positions?  ::)

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ni-co Newbie

ni-co

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Malone is so smart. When they announced the tracking stock I asked myself why Malone didn't raise his exposure to it when it really was such a great growth opportunity. Well, here we are and he'll even get paid for it to do so. There is close to zero chance that this takeover won't take place and JM not ending up with a hugely grown LILA stake. I would be very – very – suprised if the purchase price didn't include a large stock component – maybe they'll even raise more equity for the takeover. Owning CWC might be a smart move for anybody wanting to acquire more LILA.

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Liberty Newbie

Liberty

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Looks like they brought down their borrowing cost significantly. Fully-swapped borrowing cost for LILA is now down 230 bps to 6.4%. Sounds almost too good to be true.

 

It's not really my area, so I'm not 100% clear on how this works, but it appears that the decreased rate comes with an increased nominal exposure.

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Fat Pitch Newbie

Fat Pitch

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Malone is so smart. When they announced the tracking stock I asked myself why Malone didn't raise his exposure to it when it really was such a great growth opportunity. Well, here we are and he'll even get paid for it to do so. There is close to zero chance that this takeover won't take place and JM not ending up with a hugely grown LILA stake. I would be very – very – suprised if the purchase price didn't include a large stock component – maybe they'll even raise more equity for the takeover. Owning CWC might be a smart move for anybody wanting to acquire more LILA.

 

I think you are on to something here.

 

I’m thinking about selling my LILA shares in my taxable account to recognize the ST loss and move the proceeds into CWC. Malone owns a big chunk of CWC and I have a feeling he launched the LILA tracking stock hoping for it to become undervalued and using it as a vehicle to transfer his ownership in CWC for a disproportionate stake in LILA. Since LILA is still technically part of Liberty Global I'm guessing he can shuffle the balance sheet a bit in his favor as well before officially spinning it off.

 

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jay21 Newbie

jay21

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Malone is so smart. When they announced the tracking stock I asked myself why Malone didn't raise his exposure to it when it really was such a great growth opportunity. Well, here we are and he'll even get paid for it to do so. There is close to zero chance that this takeover won't take place and JM not ending up with a hugely grown LILA stake. I would be very – very – suprised if the purchase price didn't include a large stock component – maybe they'll even raise more equity for the takeover. Owning CWC might be a smart move for anybody wanting to acquire more LILA.

 

I think you are on to something here.

 

I’m thinking about selling my LILA shares in my taxable account to recognize the ST loss and move the proceeds into CWC. Malone owns a big chunk of CWC and I have a feeling he launched the LILA tracking stock hoping for it to become undervalued and using it as a vehicle to transfer his ownership in CWC for a disproportionate stake in LILA. Since LILA is still technically part of Liberty Global I'm guessing he can shuffle the balance sheet a bit in his favor as well before officially spinning it off.

 

I don't think Malone will push through an unfair deal in his benefit so I don't have much of an incentive to switch. If it is cash/stock and CWC gets bought, we may have to pay taxes on the cash portion.

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ZenaidaMacroura Newbie

ZenaidaMacroura

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Malone is so smart. When they announced the tracking stock I asked myself why Malone didn't raise his exposure to it when it really was such a great growth opportunity. Well, here we are and he'll even get paid for it to do so. There is close to zero chance that this takeover won't take place and JM not ending up with a hugely grown LILA stake. I would be very – very – suprised if the purchase price didn't include a large stock component – maybe they'll even raise more equity for the takeover. Owning CWC might be a smart move for anybody wanting to acquire more LILA.

 

There's not even a price yet right?  Cwc is up 20+% Is there any indication or precedent for the premium or component of stock  the deal will be?

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ni-co Newbie

ni-co

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Malone is so smart. When they announced the tracking stock I asked myself why Malone didn't raise his exposure to it when it really was such a great growth opportunity. Well, here we are and he'll even get paid for it to do so. There is close to zero chance that this takeover won't take place and JM not ending up with a hugely grown LILA stake. I would be very – very – suprised if the purchase price didn't include a large stock component – maybe they'll even raise more equity for the takeover. Owning CWC might be a smart move for anybody wanting to acquire more LILA.

 

There's not even a price yet right?  Cwc is up 20+% Is there any indication or precedent for the premium or component of stock  the deal will be?

 

 

The rumored price is 85p per share but there's certainly some risk involved that the deal doesn't go through at this price:

 

Liberty Global, the owner of Virgin Media, is in talks to take over Cable & Wireless Communications (CWC) in a deal that could value the Caribbean focused telecoms group at nearly £4bn.

 

Shares in CWC jumped 21 per cent to end at 71p, valuing it at £3.1bn, amid reports that Liberty could offer about £3.7bn in cash and stock, or about 85p a share. It would also take on CWC’s debt of about £2.6bn.

 

http://www.independent.co.uk/news/business/news/cable-wireless-in-37bn-bid-talks-with-liberty-global-a6705231.html

 

I don't think that Malone will push through an unfair deal. My guess is that LILA is going to pay a fair price for CWC. That doesn't mean that he won't use the low LILA stock price to his advantage, though. If I were as huge a CWC shareholder as he is, behind the scenes, I would push hard to do a deal with as small a cash component as possible – maybe even an all share offer? LILA share price aside, for tax reasons alone that's the way to go. Malone's tax base is way below mine so I'm trusting him, Fries and the others to structure this deal in an intelligent way.

 

That's one of the niceties of investing with Malone: You really can trust him doing stuff like this in an efficient way. There are great opportunities to create or destroy value for shareholders through acquisitions. He really has proven to be a guy who creates value through financial transactions.

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muscleman Newbie

muscleman

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Looks like they brought down their borrowing cost significantly. Fully-swapped borrowing cost for LILA is now down 230 bps to 6.4%. Sounds almost too good to be true.

 

It's not really my area, so I'm not 100% clear on how this works, but it appears that the decreased rate comes with an increased nominal exposure.

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10993475-5248-143057&type=sect&TabIndex=2&companyid=901298&ppu=%252fdefault.aspx%253fsym%253dLILA

 

"At September 30, 2015, the average tenor of our third-party debt attributed to the LiLAC Group was nearly eight years, with minimal maturities prior to 2022. Our blended fully-swapped borrowing cost of such debt was 6.4% at the end of Q3 2015, as compared to 8.7% at June 30, 2015. The reduction in our borrowing cost reflects the impact of a series of transactions that we undertook in our Chilean credit pool during Q3 2015, relating to a re-strike of a large portion of derivatives associated with our $1.4 billion principal amount of our senior secured notes. The net impact of these transactions resulted in a reduction in the annual swapped coupon (as noted above) that we pay going forward, with the notional amount of our leverage on a swapped basis increasing from CLP 760 billion to CLP 911 billion.

 

As a result of the re-strike, the gross and net leverage ratios associated with the debt attributed to the LiLAC Group increased to 4.4x and 3.9x, respectively, as compared to adjusted ratios of 3.9x and 3.5x in Q2 2015, respectively, after giving pro forma effect to the OCF impact of the Choice transaction."

 

 

What's the rational of doing this transaction? It makes the leverage ratio worse. The only "benefit" is that yearly interest payment is down from 66.1 bn to 58.2 bn, but after 8 years, they need to pay 151 bn more debt. So they end up having to pay more.

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abitofvalue Newbie

abitofvalue

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Let's not kid ourselves - Malone may create value for shareholders but he is going to look out for No. 1 first. His history taking advantage of shareholders to ensure he and his guys get paid is quite extensive. Anyone who has read cable cowboy or followed his career can see the dramatic difference in returns Malone himself has earned vs what public shareholders have earned. That said, his shareholder returns are absolutely impressive and I do think LILA offers a great opportunity to partner with his team as it does to latin america cable what it did in Europe with liberty.  But don't fool yourself thinking he is going to treat you fairly or as he treats his own holdings.

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jay21 Newbie

jay21

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Let's not kid ourselves - Malone may create value for shareholders but he is going to look out for No. 1 first. His history taking advantage of shareholders to ensure he and his guys get paid is quite extensive. Anyone who has read cable cowboy or followed his career can see the dramatic difference in returns Malone himself has earned vs what public shareholders have earned. That said, his shareholder returns are absolutely impressive and I do think LILA offers a great opportunity to partner with his team as it does to latin america cable what it did in Europe with liberty.  But don't fool yourself thinking he is going to treat you fairly or as he treats his own holdings.

 

Can you list examples of his unfair dealings? I think I have an idea of some; just want to see if I missed any. Thanks

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rogermunibond Newbie

rogermunibond

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Let's not kid ourselves - Malone may create value for shareholders but he is going to look out for No. 1 first. His history taking advantage of shareholders to ensure he and his guys get paid is quite extensive. Anyone who has read cable cowboy or followed his career can see the dramatic difference in returns Malone himself has earned vs what public shareholders have earned. That said, his shareholder returns are absolutely impressive and I do think LILA offers a great opportunity to partner with his team as it does to latin america cable what it did in Europe with liberty.  But don't fool yourself thinking he is going to treat you fairly or as he treats his own holdings.

 

Can you list examples of his unfair dealings? I think I have an idea of some; just want to see if I missed any. Thanks

 

Liberty Media's spinoff of Liberty Global screwed UCOMA shareholders on the exchange by undervaluing significantly UCOMA.

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muscleman Newbie

muscleman

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I heard John Malone was treating shareholders fairly until he saw all of his buddies were doing worst than he did but became richer, so he structured the TCI deal to spin off Liberty Media.

 

They have until November 19th to get the details of the offer to buy CWC out. CWC trades at a much higher EV/EBITDA multiple than LILA. I would be pissed if the deal is an all stock deal to exchange undervalued LILA with overvalued CWC.

 

Does anyone know Malone's voting power on this matter? I think he has ways to force an unfair deal. The only question is whether he would use that power.

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10841078-1033-633094&type=sect&TabIndex=2&companyid=901298&ppu=%252fdefault.aspx%253fsym%253dLILA

 

"Holders of LiLAC Ordinary Shares will have separate voting rights only on a limited set of matters and could be outvoted by holders of Liberty Global Ordinary Shares on all other matters. Holders of Liberty Global Ordinary Shares and LiLAC Ordinary Shares will vote together as a single class, except in certain limited circumstances prescribed by our new articles or as required by English law. Each Class B ordinary share of each group will have ten votes, and each Class A ordinary share of each group will have one vote. Holders of Class C ordinary shares of each group will have no voting rights at general meetings of the company or meetings of all of the shares relating to one group. When holders of Liberty Global Ordinary Shares and LiLAC Ordinary Shares vote together as a single class, holders having a majority of the votes (or 75%, in the case of a vote requiring a special resolution) present and voting will be in a position to control the outcome of the vote even if the matter involves a conflict of interest among our shareholders or has a greater impact on one group than the other. As of July 1, 2015, the date of the distribution of the LiLAC Ordinary Shares, holders of Liberty Global Ordinary Shares collectively directed approximately 95% of the aggregate voting power in our company, and holders of LiLAC Ordinary Shares collectively directed approximately 5% of the aggregate voting power in our company."

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muscleman Newbie

muscleman

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CWC's 2015 first 6 months EBITDA: 427 M dollars. Let's assume 850 Mn per year EBITDA.

Current long term debt: 2.8 bn.

If acquired at 5 bn market cap, the EV/EBITDA ratio is 9.17x.

 

LILA's current market cap is 1.6 bn. Debt: 2.3 bn. EBITDA is not able to be found. Adjusted OIBDA number is $127 per quarter, so about 500 mn per year. My understanding is that adjusted OIBDA is somewhat equivalent to adjusted EBITDA. Please let me know if I am wrong.

So the EV/EBITDA ratio is approximately 8x.

 

I would argue that this may be a somewhat fair value deal with CWC. We won't know until we see the offer terms.

 

 

 

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yitech Newbie

yitech

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Looks like they brought down their borrowing cost significantly. Fully-swapped borrowing cost for LILA is now down 230 bps to 6.4%. Sounds almost too good to be true.

 

It's not really my area, so I'm not 100% clear on how this works, but it appears that the decreased rate comes with an increased nominal exposure.

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10993475-5248-143057&type=sect&TabIndex=2&companyid=901298&ppu=%252fdefault.aspx%253fsym%253dLILA

 

"At September 30, 2015, the average tenor of our third-party debt attributed to the LiLAC Group was nearly eight years, with minimal maturities prior to 2022. Our blended fully-swapped borrowing cost of such debt was 6.4% at the end of Q3 2015, as compared to 8.7% at June 30, 2015. The reduction in our borrowing cost reflects the impact of a series of transactions that we undertook in our Chilean credit pool during Q3 2015, relating to a re-strike of a large portion of derivatives associated with our $1.4 billion principal amount of our senior secured notes. The net impact of these transactions resulted in a reduction in the annual swapped coupon (as noted above) that we pay going forward, with the notional amount of our leverage on a swapped basis increasing from CLP 760 billion to CLP 911 billion.

 

As a result of the re-strike, the gross and net leverage ratios associated with the debt attributed to the LiLAC Group increased to 4.4x and 3.9x, respectively, as compared to adjusted ratios of 3.9x and 3.5x in Q2 2015, respectively, after giving pro forma effect to the OCF impact of the Choice transaction."

 

 

What's the rational of doing this transaction? It makes the leverage ratio worse. The only "benefit" is that yearly interest payment is down from 66.1 bn to 58.2 bn, but after 8 years, they need to pay 151 bn more debt. So they end up having to pay more.

 

If you compare the difference of the interest payment annuities and the PV of extra notional and assume constant USD/CLP exchange rates using 6-8% to discount, the difference overall is negative $7-17M USD. So it's not really material.

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yitech Newbie

yitech

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CWC's 2015 first 6 months EBITDA: 427 M dollars. Let's assume 850 Mn per year EBITDA.

Current long term debt: 2.8 bn.

If acquired at 5 bn market cap, the EV/EBITDA ratio is 9.17x.

 

LILA's current market cap is 1.6 bn. Debt: 2.3 bn. EBITDA is not able to be found. Adjusted OIBDA number is $127 per quarter, so about 500 mn per year. My understanding is that adjusted OIBDA is somewhat equivalent to adjusted EBITDA. Please let me know if I am wrong.

So the EV/EBITDA ratio is approximately 8x.

 

I would argue that this may be a somewhat fair value deal with CWC. We won't know until we see the offer terms.

 

Let's say we use your 500 mn EBITDA figure. You left out 238.2 mn cash and 63 mn fair value of derivatives in the LiLAC Group, so EV/EBITDA is about 7.3.

 

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