GLIBA/LVNTA - GCI Liberty

[Munger_Disciple]

I just sent a request to Sanjeev to change the name of this thread to either GLIBA or GLIBA/LVNTA.

[Gamecock-YT]

Aren’t they coming up on the end of the deadline for GLIBA and LBRDA to avoid merging?

[Munger_Disciple]

GLIBA has been a public company for less than a year. This one year clock expires in early Q2 2019, at which point I expect GCI Liberty and Liberty Broadband to merge. Eventually the end game is for Charter to acquire the combined entity and get rid of all the complexity. GCI fits like a glove for Charter.

[Munger_Disciple]

BTW both LBRDA and GLIBA have been conducting a joint investor conference call for the last two quarters to discuss results.

[thefatbaboon]

Did not mean to suggest mismanagement. Just a horrible energy dependent market and a few misfortunes. But still money is money even if it vanishes through fcc fiat.

 

I know you are just putting it forward as an exercise but I would not nonchalantly write off gci. First, most of the money we paid for gci was in Lvnta stock issued at a huge discount to charter...between 30% and 40% (depending on your valuation of the exchangeables). Second, 20% of what would be left in your zero value gci world would be tree and while I like it it’s not exactly what I had in mind when I bought a cheaper charter. Personally I hope Gci is worth close to what they paid.  Otherwise I would have preferred continue with the lvnta tracking structure buying back stock with the cash flows from qvc for the exxhangeables shield. 

 

Anyway...wonder how tree plays...obviously got nothing do with charter

 

 

[Munger_Disciple]

Did not mean to suggest mismanagement. Just a horrible energy dependent market and a few misfortunes. But still money is money even if it vanishes through fcc fiat.

 

I know you are just putting it forward as an exercise but I would not nonchalantly write off gci. First, most of the money we paid for gci was in Lvnta stock issued at a huge discount to charter...between 30% and 40% (depending on your valuation of the exchangeables). Second, 20% of what would be left in your zero value gci world would be tree and while I like it it’s not exactly what I had in mind when I bought a cheaper charter. Personally I hope Gci is worth close to what they paid.  Otherwise I would have preferred continue with the lvnta tracking structure buying back stock with the cash flows from qvc for the exxhangeables shield. 

 

Anyway...wonder how tree plays...obviously got nothing do with charter

 

 

You are right that I am taking GCI equity to zero as a thought experiment. I think you are missing the bigger point of my comment. All I am saying is that at the current prices you are getting GCI for free and more. This is meant to show there exists a substantial "margin of safety" in the current GLIBA price. Naturally I don't think GCI equity is worth $0, but much more.

 

In terms of what you would have preferred to own (LVNTA or GLIBA) doesn't matter now. It is all water under the bridge.

[thefatbaboon]

Did not mean to suggest mismanagement. Just a horrible energy dependent market and a few misfortunes. But still money is money even if it vanishes through fcc fiat.

 

I know you are just putting it forward as an exercise but I would not nonchalantly write off gci. First, most of the money we paid for gci was in Lvnta stock issued at a huge discount to charter...between 30% and 40% (depending on your valuation of the exchangeables). Second, 20% of what would be left in your zero value gci world would be tree and while I like it it’s not exactly what I had in mind when I bought a cheaper charter. Personally I hope Gci is worth close to what they paid.  Otherwise I would have preferred continue with the lvnta tracking structure buying back stock with the cash flows from qvc for the exxhangeables shield. 

 

Anyway...wonder how tree plays...obviously got nothing do with charter

 

 

You are right that I am taking GCI equity to zero as a thought experiment. I think you are missing the bigger point of my comment. All I am saying is that at the current prices you are getting GCI for free and more. This is meant to show there exists a substantial "margin of safety" in the current GLIBA price. Naturally I don't think GCI equity is worth $0, but much more.

 

In terms of what you would have preferred to own (LVNTA or GLIBA) doesn't matter now. It is all water under the bridge.

 

Using a 270m EBITDA a 6.5 turns valuation just covers the debt and pref, ie zero equity like your “worst case”.  For what it is worth 6.5 is about the value given to liberty global, lilak and most telcos. Not sure why anyone would be so confident that a tiny cable co in a one trick economy in a deep recession with a declining population should be worth more. I am actually hopeful and hold a lot of gliba but I object to the way you say it, like it is a savage worst case scenario type thing - it is not.

 

Gliba is not some huge +30% discount situation like lsxm currently or lvnta pre deal. It is somewhere between 15% and 20% and that’s assuming the lbrd is look through to chtr, gci is worth cost and an investor is willing to have approx 15% gross assets in tree at 30 times EBITDA. Anyinvestor who is new to the story and is not “tax committed” to gliba from lvnta/qvc shouldn’t rush to gliba for the extra small discount if they are not comfortable with gci and tree. The discount isn’t enough to short out tree without a timeline  like one could do with Expedia.  And neither is the discount big enough to be nonchalant about the value of large components of value like gci and tree.

 

You might be right to upbraid me for being whistful over lvnta pre deal as it’s all in the past!. But hey I know no other way to learn from the past other that to look at what happened in context of what might have happened if other decisions had been made. Obviously that kind of hypothetical stuff has its own significant limitations but I’m not sure there’s any other way to reflect on or judge management or investment decisions.

 

Anyway as you say, water under bridge, we are where we are...any thoughts on Tree? What happens to our stake when these liberties start rationalising?

 

[scorpioncapital]

Gci is a can - an asset bought to spin off a tracker to a real company to narrow a trading discount. Assuming it was purchased at fair value I would discount it all together.

Ironically the discount did not close. Notice that the Maffei line of closing the discount rarely happens. Maybe a little...I think his thesis is a little bonkers.

Charter buying gliba or lbrdk is essentially a large block share buyback.

Gliba has a few other tech venture companies in it. Some are not too bad.

Maybe in the future it will be a platform for something or it will disappear.

[Munger_Disciple]

 

Using a 270m EBITDA a 6.5 turns valuation just covers the debt and pref, ie zero equity like your “worst case”.  For what it is worth 6.5 is about the value given to liberty global, lilak and most telcos. Not sure why anyone would be so confident that a tiny cable co in a one trick economy in a deep recession with a declining population should be worth more. I am actually hopeful and hold a lot of gliba but I object to the way you say it, like it is a savage worst case scenario type thing - it is not.

 

Gliba is not some huge +30% discount situation like lsxm currently or lvnta pre deal. It is somewhere between 15% and 20% and that’s assuming the lbrd is look through to chtr, gci is worth cost and an investor is willing to have approx 15% gross assets in tree at 30 times EBITDA. Anyinvestor who is new to the story and is not “tax committed” to gliba from lvnta/qvc shouldn’t rush to gliba for the extra small discount if they are not comfortable with gci and tree. The discount isn’t enough to short out tree without a timeline  like one could do with Expedia.  And neither is the discount big enough to be nonchalant about the value of large components of value like gci and tree.

 

You might be right to upbraid me for being whistful over lvnta pre deal as it’s all in the past!. But hey I know no other way to learn from the past other that to look at what happened in context of what might have happened if other decisions had been made. Obviously that kind of hypothetical stuff has its own significant limitations but I’m not sure there’s any other way to reflect on or judge management or investment decisions.

 

Anyway as you say, water under bridge, we are where we are...any thoughts on Tree? What happens to our stake when these liberties start rationalising?

 

 

I am hopeful that Maffei and GCI management (Duncan & Pounds) can turn around GCI ops, so that is where my non-zero GCI valuation comes from. But if GCI is a 0, so be it. I simply look at it as a free GCI equity call option in perpetuity plus all the other publicly traded equities. The main (perhaps the only) reason to own GLIBA/LBRDA is to own Charter at a discount. There is also a decent chance that Charter will pay 8-9 times multiple for GCI part of GLIBA in the next couple of years especially if then can clean up GCI and rationalize the capex and operating expenses.

 

If you believe what LVNTA paid for GCI then the GLIBA is trading at a discount to look-through NAV of around 22%. If you think GCI equity is worthless, then GLIBA trades for a look-through NAV discount of around 9% or so, similar to LBRDA discount to NAV. The reality is probably somewhere in between.

 

I am not thrilled with TREE but I am willing to ride Maffei's coattails with it. He seems to be quite bullish about TREE given that he bought more TREE this year. I would have preferred if he bought more Charter with the capital. TREE's valuation is a risk and you make a good point about it. I don't think owning LBRDA/K reduces the risk given that they will most likely merge with GLIBA. If you don't want to take the risk with GCI or TREE, your best bet is to own Charter directly.

 

When you invest in a Malone controlled entity, you always have some risk that decisions are not made in the best interests of minority shareholders. For instance, LILAC totally overpaid for Cable & Wireless (Malone was a shareholder of both).

 

In terms of TREE stake, my guess is that LBRDA will merge with GLIBA first, and then split off evite, TREE stock, some debt and other non-cable stuff into a new company. The rest of the combined company will be exchanged for Charter stock I think.

[thefatbaboon]

Hmmm not sure about your numbers. Without getting into the absolutes... just look at the differential you give for gci being worth what was paid compared to gci being worthless: 13%. So you are saying that a 1.2b swing in value translates to a 13% reduction in nAv?

 

Regarding TRee I guess you’re right although I wonder why they left it in gliba if that’s the case. Why not let it stay with qvc Until ready for its own tracker or spin.

[Munger_Disciple]

Hmmm not sure about your numbers. Without getting into the absolutes... just look at the differential you give for gci being worth what was paid compared to gci being worthless: 13%. So you are saying that a 1.2b swing in value translates to a 13% reduction in nAv?

 

Regarding TRee I guess you’re right although I wonder why they left it in gliba if that’s the case. Why not let it stay with qvc Until ready for its own tracker or spin.

 

The deal value of $1.14B includes $175M of preferred stock (The deal was struck at $27.50 in GLIBA shares plus $5 preferred stock for each GCI share, there were 35M GCI common shares outstanding at the time of merger). So GLIBA common equity value was roughly $1B.

 

I honestly don't know why TREE is a part of GLIBA not QVC, or why they bought it in the first place.

[thefatbaboon]

They got it originally as part of a much larger IAC investment (that also owned expedia, ticketmaster (now merged into live) and HSN (recently bought outright by q). Liberty was a big shareholder when Diller spun these out over the last 15 years. Tree was a tiny part of a big group of assets. Now they added a little bit one or two times I think more recently so they obviously think it’s a good business. I’ve no problem with it (not that anyone cares either way!) but I think it’s an exciting business.

 

 

[vince]

They got it originally as part of a much larger IAC investment (that also owned expedia, ticketmaster (now merged into live) and HSN (recently bought outright by q). Liberty was a big shareholder when Diller spun these out over the last 15 years. Tree was a tiny part of a big group of assets. Now they added a little bit one or two times I think more recently so they obviously think it’s a good business. I’ve no problem with it (not that anyone cares either way!) but I think it’s an exciting business.

 

Me too, I think Tree may surprise a lot of folks and be a significant driver of GCI value, certainly has lots of potential

[Munger_Disciple]

They got it originally as part of a much larger IAC investment (that also owned expedia, ticketmaster (now merged into live) and HSN (recently bought outright by q). Liberty was a big shareholder when Diller spun these out over the last 15 years. Tree was a tiny part of a big group of assets. Now they added a little bit one or two times I think more recently so they obviously think it’s a good business. I’ve no problem with it (not that anyone cares either way!) but I think it’s an exciting business.

 

 

Thanks, that makes sense. I am fine with Maffei's take on TREE and I hope he is right. I own GLIBA as a CHTR proxy at a discount with some free options thrown in just like everyone else. 

[Munger_Disciple]

Regarding GLIBA discount to NAV, Maffei said the following in the prepared remarks segment of the Q3 conference call:

 

So starting at GCI Liberty. During the quarter, we initiated share repurchase at GCI Liberty and from the period of August 1st through October 31st, we repurchased over $50 million worth of stock. We're doing this to take advantage of, what we call, the double discount on Charter, assuming a full discount to Liberty Broadband and GCI Liberty and you look through to where Charter is trading, the discount is in the low 20% range. And when you look at the Charter, look to price as of today's close, it was about $260 a share of Charter, so we consider pretty attractively buying GCI Liberty at these prices.

 

In effect Maffei is saying that buying GLIBA is like buying Charter at $260 per share on Nov 8th. Charter closed at $324.65 on Nov 8th. So GLIBA discount on Nov 8th to NAV according to Maffei is roughly 20%. Working backwards, this means that Maffei still thinks that GCI has an enterprise value of roughly $2.5-2.6B FWIW.

[Gamecock-YT]

Coming up on the magical one year anniversary of the merger: MARCH 9, 2019

 

Part of me wonders since there's the double discount still in place if it makes sense to keep GCI and Broadband separate and keeping buying back the GCI stock? At some point if/when the discount collapses, then it would make sense to merge the two companies?

 

 

Maffei at the last CC said:

 

So starting at GCI Liberty, at the corporate level we continued share repurchases. The November 1 and January 31, we repurchased over $100 million worth of stock. We aim to take advantage of the double discount at GCI Liberty, the low and the low Charter price. That double discount is because look through with the discount GCI Liberty has Liberty Broadband and then turn Liberty Broadband has to Charter.

 

To-date is you look at that double discount, we've effectively repurchased a Charter in average look through price of around $270 and that look through price today is up to $290 and obviously Charter itself is considerably higher. So we're excited about trying to take advantage of both, the growth in Charter and that double discount.

 

[SI]

Issue there is there isn’t a ton of cash flow. They did $101mn buybacks in that holiday period which is ~35-40% of their annual ebitda, fcf obviously being much less.

[scorpioncapital]

My experience with these kinds of companies - or even majority owned single companies is discounts fluctuate but almost never close. Only the end to the control or see through structure will.

 

 

[WayWardCloud]

Does anyone have a guess why GLIBA is up 5.23% today while Charter is down 0.17%, LBRDA is down 0.13% and TREE is up 1.81%?

 

Any news about General Communication/the Alaskan economy/the FCC rural help regulation that I missed maybe?

[NotSoWise]

GLIBA results call was on 11th Nov. In short Alaskan business did reasonably well - worth to read quarterly call transcript for more details. Other smaller contributions possibly were LendingTree valuation mentioned on the call and potentially discussion about growing discount to NAV.

[WayWardCloud]

Thank you!

I didn't realize the call happened after market close yesterday ::)

[Shooter MacGavin]

I think the bigger reason for the stock move is that Citi upgraded the stock and pushed the price target up to $80 from $76. I think the results were ok.  Alaska was less of a horror show than usual.  They didn't buy any GCI stock even though there is a meaningful NAV discount because they are too levered.  In hindsight owning CHTR directly would have been a waaaay better buy.  I think Liberty f'ed up on this GCI asset.  They should merge it with Liberty Trip and qurate and rename the ticker to LSHITK.

[NotSoWise]

Not sure that pushing target up by 5,26% by one analyst would make the price go up by 5,17%. In the first place, Citi upgrade was raised due to the reasons mentioned earlier in the post.

 

Do you think that CHTR was better buy than GLIBA assuming the discount to NAV at some point in time will narrow to 0%?

[vince]

Does anyone have a guess why GLIBA is up 5.23% today while Charter is down 0.17%, LBRDA is down 0.13% and TREE is up 1.81%?

 

Any news about General Communication/the Alaskan economy/the FCC rural help regulation that I missed maybe?

 

the operating business within gliba is starting to turn positively, and the discount to net asset value had grown to be unusually large

[Agrippa07]

Down almost 50% today (Charter - 11%) at market opening - anyone know what might have triggered this? (Margin call?)