LMCA - Liberty Media

[Liberty]

I'm curious, does anyone here own Charter directly?

[orion]

SIRI earnings: http://investor.siriusxm.com/releasedetail.cfm?ReleaseID=780234

 

SiriusXM has now purchased 391 million shares of its common stock so far this year for nearly $1.3 billion, and we plan to continue using our growing free cash flow and strong balance sheet in a very disciplined way to reward our investors," added Meyer.

 

I´m posting this here because SIRI is such a large part of LMCA.

 

 

[Liberty]

http://www.nytimes.com/2013/07/26/business/media/glenn-britt-to-retire-as-time-warner-cable-chief.html

 

I wonder if this is a sign of a Charter merger (regardless of what he says publicly -- of course he can't say anything until there's an official announcement)... Would be surprised if the current charter management team ran the show if they merged, so Britt might have figured it was a good time to bow out.

[Guest wellmont]

http://www.nytimes.com/2013/07/26/business/media/glenn-britt-to-retire-as-time-warner-cable-chief.html

 

I wonder if this is a sign of a Charter merger... Would be surprised if the current charter management team ran the show if they merged, so Britt might have figured it was a good time to bow out.

 

good catch. I think you're right. TWC is a sitting duck; and it's only about how much, and how, right now for Malone and twc shareholders. The market is pricing in the combo so I don't know if there is going to be much of a pop when they announce a deal. btw, why do you suppose Malone leaked that he was looking for deal? because he wanted the stock up so he would have a better currency to actually do a deal. So analysts began to run the numbers on various scenarios, and Wala! the stock is way up since he first leaked. Malone is strategic. When he wants the stock up he knows how. When he wants it down, he knows how.

[Liberty]

good catch. I think you're right. TWC is a sitting duck; and it's only about how much, and how, right now for Malone and twc shareholders. The market is pricing in the combo so I don't know if there is going to be much of a pop when they announce a deal. btw, why do you suppose Malone leaked that he was looking for deal? because he wanted the stock up so he would have a better currency to actually do a deal. So analysts began to run the numbers on various scenarios, and Wala! the stock is way up since he first leaked. Malone is strategic. When he wants the stock up he knows how. When he wants it down, he knows how.

 

That's sharp. And conversely, if the market is pricing in a merger but it doesn't happen, TWC stock will also drop, giving further incentive.

[Gamecock-YT]

http://www.nytimes.com/2013/07/26/business/media/glenn-britt-to-retire-as-time-warner-cable-chief.html

 

I wonder if this is a sign of a Charter merger... Would be surprised if the current charter management team ran the show if they merged, so Britt might have figured it was a good time to bow out.

 

good catch. I think you're right. TWC is a sitting duck; and it's only about how much, and how, right now for Malone and twc shareholders. The market is pricing in the combo so I don't know if there is going to be much of a pop when they announce a deal. btw, why do you suppose Malone leaked that he was looking for deal? because he wanted the stock up so he would have a better currency to actually do a deal. So analysts began to run the numbers on various scenarios, and Wala! the stock is way up since he first leaked. Malone is strategic. When he wants the stock up he knows how. When he wants it down, he knows how.

 

Absolutely. Cable Cowboys even said as much when he was trying to keep control of TCI after Magness died.

[ItsAValueTrap]

When he wants the stock up he knows how. When he wants it down, he knows how.

I'm not sure about that.

 

When Starz first split off of Liberty Media (Capital at the time), it was trading at an extremely low valuation.  So low that Starz was buying back its shares and Liberty Capital took it over.  I think Malone was expecting Starz to trade at a premium since it was a pure play company.  Now that Starz has been spun out again... it is trading at a premium valuation.

 

You can also look at Liberty Ventures.  I honestly can't figure out why people are paying so much for it.  I think Malone was expecting it to trade around $20 or less (the example in one of the SEC filings gave an example with Ventures at $20 or something like that), now it is trading at $95.

 

2- With the spinoffs and the trackers, Malone seems to be more fair towards shareholders nowadays.  Manipulating the stock price is kind of illegal and would expose Malone to legal liabilities.

 

3- I'm pretty sure that he wants LMCA to be at a low valuation so that he can just sit there and buy back shares.  But the annual report and the presentations are somewhat promotional (though he may be intentionally overloading people with information).  By pointing out all of the good things going on at LMCA, he avoids legal problems... now people can't accuse him of cheating shareholders like he did in the past.

[bmichaud]

Here are a couple of Deutsche Bank notes on TWC/CHTR. Also attached is my analysis of a potential TWC/CHTR tie-up....

 

1. Given Malone's target leverage ratio of between 4 and 5 turns, the pro forma TWC/CHTR NewCo has approximately $15B of debt capacity

2. CHTR could merge with TWC at their current stock prices, with TWC owning 73% of NewCo. PF net debt/2014E EBITDA would be 3.2X.

3. $15B of debt issuance works out to approximately $40 per NewCo share, or 25% of TWC's current stock price.

4. PF NewCo, assuming $3.6B of NOLs from CHTR and a PF 39% EBITDA margin (1 to 2% lower than Comcast), would trade at 7.7X 2014E EBITDA with a leverage ratio of 3.9X, providing Malone & Co. with plenty of capacity to finance organic growth and/or acquisitions. 

TWC_Deutsche_Bank_Note_7.26.13.pdf

TWC-CHTR_Deutsche_Bank_Note_6.17.13.pdf

TWC-CHTR_Merger_Analysis.pdf

[bmichaud]

BTW....

 

Cablevision's projected 2014 Telecom EBITDA is $1,839 according to Deutsche Bank on revenue of $6,028 for a margin of 30.5%.

 

At $19 per share, CVC trades at 8.1X the 2014 EBITDA estimate on a TEV basis. Assuming a merged CVC/TWC could bring that margin up to 39%, CVC trades at 6.3X. Plus CVC has some NOLs.

 

A CHTR/TWC/CVC is likely a pretty logical combination.

[Liberty]

Here are a couple of Deutsche Bank notes on TWC/CHTR. Also attached is my analysis of a potential TWC/CHTR tie-up....

 

1. Given Malone's target leverage ratio of between 4 and 5 turns, the pro forma TWC/CHTR NewCo has approximately $15B of debt capacity

2. CHTR could merge with TWC at their current stock prices, with TWC owning 73% of NewCo. PF net debt/2014E EBITDA would be 3.2X.

3. $15B of debt issuance works out to approximately $40 per NewCo share, or 25% of TWC's current stock price.

4. PF NewCo, assuming $3.6B of NOLs from CHTR and a PF 39% EBITDA margin (1 to 2% lower than Comcast), would trade at 7.7X 2014E EBITDA with a leverage ratio of 3.9X, providing Malone & Co. with plenty of capacity to finance organic growth and/or acquisitions.

 

Thanks, bmichaud!

[bmichaud]

8)

[Guest wellmont]

if there was a time the dolan's would sell you would think it would be "soon" given the valuations on cable assets right now. having said that I think he will wait until after twc and chtr merge, if they do. and then auction it off. twc is rudderless at the moment. chtr has a world class "skipper" and bod.

[bmichaud]

Agreed - with the industry on the cusp significant consolidation led by the Master himself, valuations where they are, PLUS record-cheap debt, I don't see how there is a better time.

[Liberty]

Bmichaud, I'm not sure I understand the reasoning behind the $40 special div. Could you elaborate on it a bit?

[bmichaud]

I actually stole the idea from the Trian Funds presentation on PEP/MDLZ. They proposed an all stock offer for mdlz at a modest 10% premium, then do a special dividend/buyback worth 20% of the combined company. This way the take out premium is not overly onerous and both companies share in the synergy/NOL/growth upside.

[Liberty]

I actually stole the idea from the Trian Funds presentation on PEP/MDLZ. They proposed an all stock offer for mdlz at a modest 10% premium, then do a special dividend/buyback worth 20% of the combined company. This way the take out premium is not overly onerous and both companies share in the synergy/NOL/growth upside.

 

But if the dividend is financed with debt, how is it better for TWC shareholders than staying indendent and raising debt to pay themselves a special div? I must be missing something.

[bmichaud]

I'd rather hold $117 worth of NewCo plus a $29.25 special dividend versus $117 of Existing TWC plus $29.25. NewCo will be run by Malone et al, have a huge margin expansion opportunity and NOLs.

 

But that will be Malone's job to convince TWC shareholders they are better off holding NewCo stock versus their current stock.

[Liberty]

I'd rather hold $117 worth of NewCo plus a $29.25 special dividend versus $117 of Existing TWC plus $29.25. NewCo will be run by Malone et al, have a huge margin expansion opportunity and NOLs.

 

But that will be Malone's job to convince TWC shareholders they are better off holding NewCo stock versus their current stock.

 

Ok. I'd rather keep that extra leverage for extra acquisitions rather than a special div, but I suppose that to convince shareholders to support a deal, bribing them with their own money can work  :)

[Guest wellmont]

I don't see a special dividend. i did read that malone needs to offer some cash in his deal, which is probably what they are working on with goldman.

[bmichaud]

It really is semantics - they could just do a stock and cash deal for 25% premium. Only difference between that and my analysis is CHTR shareholders don't receive part of a special dividend. And combined leverage would be slightly lower.

[orion]

Bloomberg: Cox Communications said to discuss cable merger with Charter

 

Update: Here ist the link to the full story: http://www.bloomberg.com/news/2013-08-02/cox-said-to-discuss-merger-with-malone-backed-charter.html

[Liberty]

Bloomberg: Cox Communications said to discuss cable merger with Charter

 

Update: Here ist the link to the full story: http://www.bloomberg.com/news/2013-08-02/cox-said-to-discuss-merger-with-malone-backed-charter.html

 

Thanks, I was looking for what caused the stock to jump $6.

 

"Cox Communications is the third-largest cable television provider in the United States, serving more than 6.2 million customers, including 2.9 million digital cable subscribers, 3.5 million Internet subscribers, and almost 3.2 million digital telephone subscribers, making it the seventh-largest telephone carrier in the country."

[constructive]

Vastly more plausible than Time Warner.

[Liberty]

So TWC is down, but Cablevision is up 7%. Is this the market predicting that Cablevision will also be gobbled up? Not that the market has to make sense, but would a Cox deal increase the probability of a Cablevision deal?

 

Is it simply that if CHTR and COX tie the knot, CVC will be too small to compete and the logical conclusion is for it to join up with a bigger player?

[ItsAValueTrap]

The scale gives them better negotiating leverage with content providers.

 

In other industries, negotiating leverage can be huge.  Private insurers pay 2-3X what Medicare pays for dialysis clinics.  A private insurer will often only have 1 patient at a clinic, while Medicare has 90% or more of the patients.  It translates into a huge difference in the price paid.

Cable is like that too... scale is a big thing.  What happened in the past is that the government interfered because they didn't want the cable companies getting too big.

 

CVC doesn't have to get bigger, but the economics of the industry push everybody towards consolidation.  Now that the industry is more competitive with video being delivered over phone lines and over satellite, I think that the government will be less anti-consolidation.