GLIBA/LVNTA - GCI Liberty

[jgyetzer]

It was Ameritrade. Must just be me.

[scorpioncapital]

I saw it too briefly on Google. I've seen liberty pieces sometimes have weird after or before hour quotes. Usually I check the underlying position , eg chtr to confirm if it's fake.

[scorpioncapital]

I see about a 7 percent discount to q1 fair market value of charter, broadband, and lending tree. Yet it doesn't seem to move anymore one to one with charter though it's the biggest asset. Is the operating Alaska co going to have some percentage impact like If charter moves by 1 point , gci will move by 0.8?

[jgyetzer]

GCI only accounts for about 25% of EV so I can’t imagine why it would aside from market misunderstanding. I haven’t recalculated this recently but Maffei in the cc said there’s a 20% discount to NAV.  Does that seem right?

[WayWardCloud]

Since GCI Liberty isn't only composed of stakes in publicly traded companies but has acquired their own operating business in Alaska I don't see how anyone can get a super specific percentage of discount without making assumption on valuing their cable system anymore, and that will depend on what a fair multiple of EBITDA it is worth to you... For what it's worth I have them around a 16% discount if I count GCI at acquisition price which could be very conservative.

[Spekulatius]

For what it's worth I have them around a 16% discount if I count GCI at acquisition price which could be very conservative.

 

Why is using GCI acquisition price a conservative estimate of its value. It seems that cable assets are down quite a bit, since the acqusition was announced and there was an acquisition premium as well.

[scorpioncapital]

Aren't they using fair market value ?

[Munger_Disciple]

Per my calculations, Maffei was using the acquisition price of GCI in the calculation of NAV. They paid an EV multiple of 8.5 x normalized EBITDA of $330M which I think is reasonable for a Quad play, monopolistic cable company.

[Spekulatius]

Per my calculations, Maffei was using the acquisition price of GCI in the calculation of NAV. They paid an EV multiple of 8.5 x normalized EBITDA of $330M which I think is reasonable for a Quad play, monopolistic cable company.

 

I think they paid $1.12B for GCI, but GCI only made just short of $20M in EBITDA (or Dr. Malone’s Version of it), so it seems a bit more expensive than 8.5x.

[scorpioncapital]

The rationale of the deal was the close the charter discount by spinning off a tracker into a standalone corp. Hopefully the Alaska operations stub won't be a drain on the valuation tucked away inside for the major asset stakes.

[Spekulatius]

The rationale of the deal was the close the charter discount by spinning off a tracker into a standalone corp. Hopefully the Alaska operations stub won't be a drain on the valuation tucked away inside for the major asset stakes.

 

GLIBA does not look simple at all, in fact it’s almost impenetrable. After each “simplification” , the remaining entities seem more complicated than they were before. I am guessing that this is the classical Dr. Malone playbook :o

[Munger_Disciple]

Per my calculations, Maffei was using the acquisition price of GCI in the calculation of NAV. They paid an EV multiple of 8.5 x normalized EBITDA of $330M which I think is reasonable for a Quad play, monopolistic cable company.

 

I think they paid $1.12B for GCI, but GCI only made just short of $20M in EBITDA (or Dr. Malone’s Version of it), so it seems a bit more expensive than 8.5x.

 

Your GCI EBITDA number is off by an order of magnitude and I suggest you redo your homework. GCI was doing close to $300-$330M prior to the recession in Alaska, and I expect them to achieve this number in the near future. You can also read the merger proxy for further details.

[stevevri]

Per my calculations, Maffei was using the acquisition price of GCI in the calculation of NAV. They paid an EV multiple of 8.5 x normalized EBITDA of $330M which I think is reasonable for a Quad play, monopolistic cable company.

 

I think they paid $1.12B for GCI, but GCI only made just short of $20M in EBITDA (or Dr. Malone’s Version of it), so it seems a bit more expensive than 8.5x.

 

The $20M figure only includes the results of GCI from March 9th through March 31st. Page 31 of the 10-Q shows the Pro Forma Results as if GCI was apart of GCI Liberty the whole quarter. The Adjusted OIBDA is $70.188 million in that scenario.

[Spekulatius]

Per my calculations, Maffei was using the acquisition price of GCI in the calculation of NAV. They paid an EV multiple of 8.5 x normalized EBITDA of $330M which I think is reasonable for a Quad play, monopolistic cable company.

 

I think they paid $1.12B for GCI, but GCI only made just short of $20M in EBITDA (or Dr. Malone’s Version of it), so it seems a bit more expensive than 8.5x.

 

The $20M figure only includes the results of GCI from March 9th through March 31st. Page 31 of the 10-Q shows the Pro Forma Results as if GCI was apart of GCI Liberty the whole quarter. The Adjusted OIBDA is $70.188 million in that scenario.

 

Yeah, just realized that. The purchase price does not account for the assumed debt, which I think is in the order of $1.7B

 

 

The projection from the filing is below:

 

 

2016A 2017E 2018E 2019E

 

 

 

Wireless

 

$ 81 $ 93 $ 114 $ 120 $ 117

Pay TV/Cable

 

101 105 119 124 127

Enterprise

 

89 109 117 121 121

Denali Media(4)

 

1 1 2 3 14

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total EBITDA(5)

 

$ 272 $ 309 $ 353 $ 368 $ 378

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

% Margin

 

29.1 % 32.0 % 35.3 % 36.2 % 36.5 %

 

Total Revenue(2)

 

$ 934 $ 965 $ 1,000 $ 1,016 $ 1,035

Total EBITDA(2)(3)

 

288 321 365 380 391

 

[Liberty]

https://www.businesswire.com/news/home/20180612006453/en/GCI-Liberty-Announces-Proposed-Private-Offering-Exchangeable

[mbrock77]

Could someone explain what these are/what the point of them is?

[Broeb22]

Check this link out for more on exchangeables. Slide 26,38,39

 

http://files.shareholder.com/downloads/AMDA-GY7JI/0x0x964599/0AB37271-43ED-4252-B0D0-CBBFF288C00A/2017_Investor_Day_-_Liberty_Interactive_QVC_Group.pdf

[scorpioncapital]

I take it, unlike a regular loan where you must pay it off in cash, with these they can pay them off in Charter stock, so they can take advantage of if they think it's overvalued, or perhaps there may be a tax benefit on in-kind dispositions?

 

 

[Liberty]

It's a way to be tax efficient, I think. Doubt they think CHTR is overvalued, having just bought back 12% of the shares last year at higher prices.

[chrispy]

So they must be thinking charter is less undervalued than their tax rate?

[Liberty]

So they must be thinking charter is less undervalued than their tax rate?

 

It depends when the debentures are exchanged. It's not now, and they probably don't expect CHTR stock to stay this low forever.

[scorpioncapital]

https://seekingalpha.com/pr/17191762-gci-liberty-inc-prices-private-offering-415-million-1_75-percent-exchangeable-senior

 

28 year term to be exact. I think there's a good chance there will be period of over and undervaluation over such a long term :)

[dwy000]

Am I reading it wrong or is this basically just moving the cash back to Qurate while keeping the tax benefits?  The use of cash is to pay the indemnity that GCI has given to Qurate for the same Charter convertible securities. 

 

Super confusing.

[thefatbaboon]

Quite disappointed by GCI. They just lost 10% of their oibda in one fell swoop with the rural housing adjustment. And the one off step down with the mobile contract last year has not resulted in a return to growth as management said it would. Plus video customers have started declining at 10%. Hope the alskan economy improves soon.

[Munger_Disciple]

I agree that the most recent GCI results are sub-par. However the main cause for the drop in EBITDA is due to a reduction in rural healthcare (RHC) revenues due from the government because of FCC decision. GCI is appealing the ruling. It seems to me that while this is negative for the company, it is not due to mismanagement; plus there is a possibility for a resolution in company's favor. Worst case, GCI can reduce the rural CAPEX and just concentrate on the urban and oil exploration areas. Both consumer and business data revenues seem to be fine. Video is a problem for almost every cable co, especially  a tiny one like GCI due to high content costs and cord cutting/shaving. So this is not a surprise.

 

Here is the real value in GCI Liberty: If you assume that the equity value of GCI is zero (Ventures just acquired GCI equity including preferred for $1.2), GLIBA is still trading at a discount to NAV assuming there would be no taxes paid on equity holdings, which given Malone/Maffei history, is a safe assumption.

 

No wonder Maffei just bought back $50M worth of GLIBA during Q3.