GLIBA/LVNTA - GCI Liberty

[dwy000]

I wonder how they'll spin Expedia without having major tax consequences?  Don't they have to spin it out with some operating assets to avoid the capital gains taxes (much like Yahoo is facing with their spinout of Alibaba shares).

 

If Malone/Maffei are driving it, you know it's going to be very tax efficient - but curious as to exactly how.

[currygoat]

They are packaging the Bodybuilding.com business along with Liberty Expedia Holdings.

[ZenaidaMacroura]

They are packaging the Bodybuilding.com business along with Liberty Expedia Holdings.

Makes it easier to find hotels with gyms

 

http://i.imgur.com/q3XYKhm.jpg

 

On a more serious note, is that a natural pairing?  I can't figure out why they didn't originally put it with the other digital assets under the LMCA umbrella.  Small potatoes doesn't make a difference I guess...

[Liberty]

They are packaging the Bodybuilding.com business along with Liberty Expedia Holdings.

Makes it easier to find hotels with gyms

 

http://i.imgur.com/q3XYKhm.jpg

 

On a more serious note, is that a natural pairing?  I can't figure out why they didn't originally put it with the other digital assets under the LMCA umbrella.  Small potatoes doesn't make a difference I guess...

 

I believe they needed an operating business for tax reasons, just like they put TruePosition in LBRDA.

[ZenaidaMacroura]

They are packaging the Bodybuilding.com business along with Liberty Expedia Holdings.

Makes it easier to find hotels with gyms

 

http://i.imgur.com/q3XYKhm.jpg

 

On a more serious note, is that a natural pairing?  I can't figure out why they didn't originally put it with the other digital assets under the LMCA umbrella.  Small potatoes doesn't make a difference I guess...

 

I believe they needed an operating business for tax reasons, just like they put TruePosition in LBRDA.

Ah, thanks!  Makes sense.

[merkhet]

They are packaging the Bodybuilding.com business along with Liberty Expedia Holdings.

Makes it easier to find hotels with gyms

 

http://i.imgur.com/q3XYKhm.jpg

 

On a more serious note, is that a natural pairing?  I can't figure out why they didn't originally put it with the other digital assets under the LMCA umbrella.  Small potatoes doesn't make a difference I guess...

 

I believe they needed an operating business for tax reasons, just like they put TruePosition in LBRDA.

Ah, thanks!  Makes sense.

 

I also wonder if they're getting all this stuff out as fast as possible before a Yahoo/Alibaba ruling screws them.

[giofranchi]

I also wonder if they're getting all this stuff out as fast as possible before a Yahoo/Alibaba ruling screws them.

 

What do you mean? Could you elaborate a bit further?

 

Thank you,

 

Gio

[merkhet]

When you spin off a holding company that basically just holds stock, it's not going to be tax-free. However, if you have an operating business in it, then it should qualify for tax-free status from the IRS. (Malone has used this in his playbook multiple times.)

 

Yahoo & Alibaba ran into some trouble over the last year with their plan to do exactly that because of the blatantness by which Yahoo was using the rule. (The subsidiary they're dumping into AliCo was literally called Yahoo Small Business.) They asked the IRS for a comfort ruling to say that it was okay, and the IRS said no, which caused a bit ruckus.

 

So now, the status of this stuff is a little bit up in the air, and I was wondering whether Malone is trying to get some stuff done before the IRS makes things more difficult if/when they deny tax free status to Yahoo's Alibaba spinoff.

[giofranchi]

So now, the status of this stuff is a little bit up in the air, and I was wondering whether Malone is trying to get some stuff done before the IRS makes things more difficult if/when they deny tax free status to Yahoo's Alibaba spinoff.

 

Ok, now I have got it! ;)

 

Thank you,

 

Gio

[giofranchi]

I have opened a position in Liberty Interactive too.

Between Liberty Media, Liberty Broadband, Liberty Global, and Liberty Interactive, the investment I have with Malone is my largest investment today.

If Malone gets richer in the next 5 years, I will probably get richer too. ;)

 

Cheers,

 

Gio

 

[yitech]

When you spin off a holding company that basically just holds stock, it's not going to be tax-free. However, if you have an operating business in it, then it should qualify for tax-free status from the IRS. (Malone has used this in his playbook multiple times.)

 

Yahoo & Alibaba ran into some trouble over the last year with their plan to do exactly that because of the blatantness by which Yahoo was using the rule. (The subsidiary they're dumping into AliCo was literally called Yahoo Small Business.) They asked the IRS for a comfort ruling to say that it was okay, and the IRS said no, which caused a bit ruckus.

 

So now, the status of this stuff is a little bit up in the air, and I was wondering whether Malone is trying to get some stuff done before the IRS makes things more difficult if/when they deny tax free status to Yahoo's Alibaba spinoff.

 

When you said tax-free status for spinning off a holding company that basically just holds stock, do you mean no cash tax and the underlying stock would compound pre-tax with deferred capital gain tax still accruing until it is sold or taken over (i.e. by some other company or Expedia)?

 

I thought tax-free (cash tax and future tax liability) only applies to pure operating business spin-off.

 

I am still a bit confused in this area. Hopefully someone can enlighten me..

[merkhet]

http://www.nytimes.com/2015/05/23/business/dealbook/yahoos-tricky-plan-for-tax-free-spinoff-of-alibaba-stock.html?_r=0

[scorpioncapital]

Anybody looking at this at these prices?

 

Expedia is valued at roughly 12x free cash flow today.

It will be spun-off soon.

 

Charter investment via Ventures is only on a if-merger-occurs basis, otherwise it's just cash.

 

Looking at the writeup on VIC, it seems that at today's price, if you take everything else at roughly 1/2 the valuation in that report ( including Commerchub also to be spun off) and deduct the financing structure you get around $35 to $36 per share conservatively calculated vs current price of $34. The wildcard is Expedia.

 

 

[Foreign Tuffett]

I just put the finishing touches on my Liberty Ventures model. Definitely seems to be about ~20% undervalued (more if you include Liberty Broadband's discount).

 

What I like about Ventures -- versus many other holding companies that trade at a discount -- is that it's exposed to quality operating businesses. Charter/Liberty Broadband, Expedia, Bodybuilding.com, CommerceHub, etc. are all quality businesses that should continue to gain in value over time.

 

The Liberty Expedia and CommerceHub spinoffs should help to unlock value.

[muscleman]

How is the tax liability considered in your model? I find it hard to understand the tax liability if stocks like Expedia is eventually sold. Could you please help me with that?

[Foreign Tuffett]

The plan is to spin off Liberty Ventures' interests in Expedia and Bodybuilding.com in a tax free spinoff later this year ("Liberty Expedia Holdings"). Expedia does pay dividends (roughly $22.6M based on the number of shares owned by Ventures) so there is tax liability there, but they are going to leverage up Liberty Expedia to the tune of $350M in a classic Malone interest payments tax shield.

 

Ventures' overall tax situation is insanely complicated due to (a) the tax credits generated by the green/alternative energy investments (b) the complex exchangeable notes that allow for tax deductions beyond cash coupon payments and © as tracking stocks within the Liberty Interactive parent, Ventures and QVC's financials are intertwined. QVC generates lots of taxable cash flow so -- insofar as I can tell -- the various tax credits and deductions mostly go towards offsetting its taxable income.

 

Basically I just tried to make very conservative assumptions in my model. I don't think there's enough disclosure in the 10K to model every part of Ventures down to the last dollar.

 

 

 

 

[muscleman]

Thank you. I do understand that he will spin off Liberty Expedia, just like Liberty trip advisers. But what will happen after that? Liberty trip advisers deserves a discount due to the tax liability if they eventually sell the stocks. If they don't sell, then what's the plan next? Someone said after two years they can do a merger without tax issues. I never understood that. Could u please help me?

[scorpioncapital]

1. Reduce, but not eliminate the discount to NAV by creating a stock that tracks just a single focused asset.

2. Allow existing shareholders of Liberty to decide whether to hold, reduce, or increase their exposure to Expedia. Obviously the increase option is not so hot as one can just buy Expedia (EXPE).

 

I conclude that the purpose of this is a small one-time revaluation plus the ability to jettison a larger, more mature, more consolidated investment holding. My view is hold or reduce but not immediately, maybe within a year or two. Spins are sometimes traumatic breaks creating a temporary opportunity in this age of liquidity and hyper-trading.

 

 

[jmp8822]

1. Reduce, but not eliminate the discount to NAV by creating a stock that tracks just a single focused asset.

2. Allow existing shareholders of Liberty to decide whether to hold, reduce, or increase their exposure to Expedia. Obviously the increase option is not so hot as one can just buy Expedia (EXPE).

 

I conclude that the purpose of this is a small one-time revaluation plus the ability to jettison a larger, more mature, more consolidated investment holding. My view is hold or reduce but not immediately, maybe within a year or two. Spins are sometimes traumatic breaks creating a temporary opportunity in this age of liquidity and hyper-trading.

 

Do you have a sense of what the Expedia tracker will trade at based on any previous examples? I.e. do you think it will trade at a 5-percent discount to NAV, or perhaps more like a 20-percent discount to the ~$17.50 NAV?

[scorpioncapital]

I don't have much experience except that the confusion the first few days, weeks and even month could create opportunities. Look at a chart of SIRI vs LSXMA. The exchange was 1:1. I'm not sure they got exactly what they wanted yet in terms of narrowing the discount. 5% would be stellar. I feel these spins are more useful as tax-free ways for long-term investors to over time divest one division and add to another (which becomes smaller after the spin). They never tell you what they expect, but I always think of this as large, maturing businesses undergoing consolidation and the incubator parent that is left which will source new deals. Your return is the return of existing good businesses + reinvestment of new capital. The growth potential will be in the latter, while the former should be like investing in a larger dividend cash cow. Not sure they will ever tell you what is best to own as there is a different profile depending on the shareholder.

[Foreign Tuffett]

Keep in mind also that Liberty Expedia, while it will only own to ~15.7% of Expedia's total share count, will control ~52.2% of the voting power as well as the right to appoint 20% of the board. There is an agreement with Barry Diller, Expedia's chairman, that will give him the right to vote's Malone's shares for a maximum of 18 months after the conclusion of the spinoff. While it will take some time to play out, I feel that any valuation gap between Expedia and Liberty Expedia will eventually close.

 

 

Liberty Expedia's S-1 is below if you feel like torturing yourself trying to make sense of all of it

 

https://www.sec.gov/Archives/edgar/data/1669600/000104746916011528/a2227946zs-1.htm#cm11101_selected_financial_data

[muscleman]

can someone please help me with the tax questions?

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/general-tax-questions/

 

In order to understand why Liberty Expedia or Liberty trip should not trade at a discount, we have to understand capital gain tax issues here. They bought these shares at low prices and now there is a huge tax liability if they sell. You cannot ignore that when you calculate NAV, but I can not understand exactly how that is calculated.

[jmp8822]

can someone please help me with the tax questions?

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/general-tax-questions/

 

In order to understand why Liberty Expedia or Liberty trip should not trade at a discount, we have to understand capital gain tax issues here. They bought these shares at low prices and now there is a huge tax liability if they sell. You cannot ignore that when you calculate NAV, but I can not understand exactly how that is calculated.

 

Maybe someone else can chime in here with more knowledge of John Malone's history with these types of situations, but I believe he has been able to eventually merge the trackers with the actual company without taxes. Disclaimer: I have zero examples or proof of this, but I think that's the idea.

[Foreign Tuffett]

can someone please help me with the tax questions?

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/general-tax-questions/

 

In order to understand why Liberty Expedia or Liberty trip should not trade at a discount, we have to understand capital gain tax issues here. They bought these shares at low prices and now there is a huge tax liability if they sell. You cannot ignore that when you calculate NAV, but I can not understand exactly how that is calculated.

 

Maybe someone else can chime in here with more knowledge of John Malone's history with these types of situations, but I believe he has been able to eventually merge the trackers with the actual company without taxes. Disclaimer: I have zero examples or proof of this, but I think that's the idea.

 

The only guarantee is that a "Liberty" company is never going to pay more taxes than absolutely necessary. The end game here isn't likely to be anything that makes the deferred tax liabilities come due. Instead it could be an exchange or trade of some kind, like when Berkshire acquired Duracell using shares of PG. 

 

I did a quick valuation of Liberty TripAdvisor, which is a closest comparable to the pro forma Liberty Expedia. It currently trades within 1% of the value of its stake in TRIP. This is assigning no value to its BuySeasons operating subsidiary.

 

[Jurgis]

There is no exact date for the spinoff yet, correct?