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Guest wellmont

His high speed connectivity thesis makes sense.

 

Does it? Faster connectivity accelerates the uptake of streaming video. Cable companies make their money primarily on TV, not internet.

 

it's interesting. you could spend months studying how cable companies price their offerings. one of the tricks they use is if you buy video service from them, your internet service is cheaper. if you buy internet service without buying their video offering, it's expensive. so the customer looks at this and calculates the incremental cost of adding video to his internet service (which is essential), and so far has decided it's worth it. the average customer wants to pick up a remote and flip over to espn and watch a game. they, so far, have shown no inclination to cut video and rely on over the top streaming.

 

this is how the investor gets fooled by being visionary. We read online that "it's possible" to do this and a few brave souls are volunteering to become masochists by cutting video service and switching to roku. but at $40-$60 a month for HD video (incremental) most rational consumers aren't going to go through the pain. Most consumers see HD video as a good value for money spent. John Malone's buy tells you one thing: he would not have done this if he saw the cable video product going away.

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Guest wellmont

The Brooklyn Investor on Charter Communications (CHTR).

 

giofranchi

 

So CHTR is a turnaround, the investment mainly depends on new management improving operations. It will take a lot of work and time to turn around a persistently inefficient organization.

 

But there are well-run cable companies available. TWC trades at 1.3x sales, compared to CHTR trading at 1.5x sales. Where is the upside, even if Rutledge runs the company as efficiently as TWC?

 

Malone also wants to increase leverage, but there's no margin of safety when increasing debt/EBITDA from 3.5x to 5x. It's just asking for trouble, especially when the business model is under attack from cord-cutting, VOD, unbundling, FTTH, satellite, etc.

 

chrtr isn't a turnaround. :) it's going from a being poorly run cable company to a well run cable company. But you can clearly see from the numbers, it produced owners earnings in 2010-2012. and now it will produce more.

 

Malone wants the leverage. Why not TWC? Because there wasn't a big block of stock for sale of TWC. And they are not as levered as chtr. Chtr is already levered at 5 x ebitda, which makes it resemble a public lbo. Great management, leverage, and a big block of stock available. I can see why Malone jumped. As far as getting into trouble with too much debt, I doubt it. But if they do, guess who will come running with his checkbook out?

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I believe Liberty does own TWC shares and are hedging them.  The cost basis on those shares is extremely low.

 

chrtr isn't a turnaround. :) it's going from a being poorly run cable company to a well run cable company.

Isn't that the same thing?  ;)  In a turnaround, hopefully the new management is a lot better than the former management.

 

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Chtr is already levered at 5 x ebitda

 

Again, I direct you to the financial statements. Malone's idea is to increase leverage to 5x EBITDA, they're not at that level now.

 

Arguing about whether to call it a turnaround is a waste of time. I think I'll make my exit from this discussion.

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Guest wellmont

I believe Liberty does own TWC shares and are hedging them.  The cost basis on those shares is extremely low.

 

chrtr isn't a turnaround. :) it's going from a being poorly run cable company to a well run cable company.

Isn't that the same thing?  ;)  In a turnaround, hopefully the new management is a lot better than the former management.

 

I call a turnaround going from money losing to money making. when you are in a car and you turnaround, you make a u turn and go in the Opposite direction. chtr is going from being profitable to being very profitable. imo. chtr also has NOLs. So many things for Malone to LUV! :)

 

As of March 31, our leverage was 4.8x. We still expect to close Bresnan in the third quarter. At which point, we expect to be levered at approximately 5x in the last 12-month basis.

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Chtr is already levered at 5 x ebitda, which makes it resemble a public lbo. Great management, leverage, and a big block of stock available. I can see why Malone jumped.

 

I don't quite follow the logic here in regards to the leverage.  I understand how a leveraged company can experience larger swings in price but isn't that most relevant when the stock is cheap?  If you compare it on a price to sales ratio, ignoring leverage, it is fairly priced.  To grow the sales, they need to take out even more debt so it seems the prospects would have been better if it wasn't already leveraged.

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Guest wellmont

Chtr is already levered at 5 x ebitda, which makes it resemble a public lbo. Great management, leverage, and a big block of stock available. I can see why Malone jumped.

 

I don't quite follow the logic here in regards to the leverage.  I understand how a leveraged company can experience larger swings in price but isn't that most relevant when the stock is cheap?  If you compare it on a price to sales ratio, ignoring leverage, it is fairly priced.  To grow the sales, they need to take out even more debt so it seems the prospects would have been better if it wasn't already leveraged.

 

price to sales? that's really not a valid ratio, especially for cable companies. cable companies are often valued by this ratio: tmv/ebitda. I don't think growing sales at chtr has anything to do with "taking out more debt".

 

Malone thought the stock was cheap at $100.

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Guest wellmont

I am not really debating whether or not it is a good buy .. well not yet.  I am just trying to understand why having more debt is better, if all else is equal?  Malone's strategy for growth is to buy other companies, hence "more debt".

 

more debt is better because it magnifies the shareholder's return. It juices it. It leverages it. It can also work in reverse if things go wrong. More debt also acts as a tax shield for the company (if it is a tax payer). Malone does not need more debt to make acquisitions. He has a highly valued currency, and he would use chtr equity if he were to buy something. I don't see Malone taking on any more debt. In fact it would not surprise me to see him start paying it down some to get to 3 -4x leverage, which is what he was comfortable with at dtv.

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He has a highly valued currency, and he would use chtr equity if he were to buy something.

?

 

So do you think that the stock is overvalued or undervalued?  If its valuation is higher than the stock being taken over, then Malone should use stock to pay for the acquisition.  In that case, he probably shouldn't have bought Charter in the first place (because he should have just accumulated shares in the company being taken over).

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http://www.marketfolly.com/2013/06/lee-coopermans-thesis-on-covidien.html

 

Omega's Thesis on Sirius XM (SIRI)

 

We believe  that the best way to value SIRI is on a free-cash-flow per share metric as the company has over $7 billion in  gross NOLs, is buying back shares aggressively, and at these levels the amount of NOL per share increases via  the buyback. Therefore, the more aggressive SIRI is, the longer the NOL lasts per share...to the point where, in  our models, if the stock stays at $3.00 per share, it is possible to buy back the entire company before the NOL  runs out. We think downside is limited and see significant potential in the years ahead for SIRI, with a price  objective of $5 using a low-teen multiple of 2015 cash flow."

 

 

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http://www.marketfolly.com/2013/06/lee-coopermans-thesis-on-covidien.html

 

Omega's Thesis on Sirius XM (SIRI)

 

We believe  that the best way to value SIRI is on a free-cash-flow per share metric as the company has over $7 billion in  gross NOLs, is buying back shares aggressively, and at these levels the amount of NOL per share increases via  the buyback. Therefore, the more aggressive SIRI is, the longer the NOL lasts per share...to the point where, in  our models, if the stock stays at $3.00 per share, it is possible to buy back the entire company before the NOL  runs out. We think downside is limited and see significant potential in the years ahead for SIRI, with a price  objective of $5 using a low-teen multiple of 2015 cash flow."

 

I don't understand why this stock has been stuck in the $3-4/per share range for such a long time. I think potential investors are unsure of Malone's plans.

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Has anybody gone over the latest 10-Q?  It seems like Malone is intentionally trying to overload investors with information.  The presentations do highlight important information that you need to know in valuing LMCA.  For example, it was easy to miss the transfer of >$1B in cash from STRZA to LMCA if you only skimmed the 10-K.  On the other hand, Liberty does not make it easy to understand the company.

 

They don't make much of an effort in breaking out the number of CHTR/SIRI/LYV/BKS/etc. shares per LMCA share and the taxes associated with each position.

 

2- Hopefully if it hits $110 again I will be smart enough to buy shares, because LMCA will likely repurchase shares at that price.

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Racemize, that's my blog ;)

 

I posted the link before in this thread.  Cheers!

 

Well done then!  Makes sense that I would be subscribed to yours.  It happened to just pop up on my RSS feed, so I thought it would be new--my apologies for the repost.

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http://www.bloomberg.com/news/2013-06-27/malone-said-to-be-exploring-scenarios-for-time-warner-cable-deal.html

 

Love this stuff!!

 

CHTR currently trades at 9.5X trailing EBITDA versus 6.8X for TWC. CHTR could pay 9.5X TWC's trailing EBITDA in an all stock transaction, offering TWC shareholders $169 per share.

 

1. Combined EBITDA would be $10,288

2. Combined net debt would be $36,338

3. Pro forma debt ratio - 3.53X

 

Pro Forma CHTR would have the following attributes post transaction:

 

1. Significant debt capacity, as Malone's customary leverage ratio is 4 to 5X

2. Significant synergies that Malone would be receiving for free by buying TWC at CHTR's TEV/EBITDA multiple

3. Enhanced NOL present value

 

I would not at all mind receiving an immediate 50%+ premium on TWC equity and then rolling that into a deleveraged Malone-led entity.....

 

Thank you Mr. Market  ;D

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1:50 AM Time Warner Cable (TWC) has reportedly contacted Cablevision (CVC) and Cox Cable about buying them as TWC looks to grow through acquisitions rather than be bought by John Malone's Liberty Media (LMCA), which owns 27% of Charter Communications (CHTR). While talks with Cox and Cablevision haven't led too far, the latter's founder and Chairman, 86-year Chuck Dolan, could be ready to sell. As for Liberty, TWC believes a tie-up for Charter would add too much debt and it is skeptical about prospective synergies.

 

giofranchi

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Thank you giofranchi!

 

According to this article ( http://www.reuters.com/article/2013/06/28/dealtalk-timewarnercable-acquisitions-idUSL2N0F31Y920130628 ) TWC has contacted both companies in recent months.

 

Time Warner, the second-largest U.S. cable operator with more than 12 million subscribers, has contacted both companies in recent months to discuss options including a merger, according to one of the people, although in neither case have the talks progressed to any serious consideration of a transaction. The source did not say how recent the talks were.

 

So there were talks before the possible Malone offer.

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