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Liberty broadband spin-off


Patmo
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I'm not great at reading into complex stuff, so I would love to see better investors' inputs on this. What I have so far:

 

-For every 20 share block, you get 5 shares and 4 rights (transferable for a share at about 80% market cost iiuc) of the spinoff.

-implied value if exercise: 9/29x16bil total cap (A,B,C)= about $5bilcap for Broadband, 9/29x$47avg pps= $15pps Broadband, excluding the 20ish% discount on rights (tell me if the calcs are on the right track!)

 

-Will borrow $300mil from parent, makes cash payment of $300mil to parent (What's that for?)

-Keeps talking about how leveraged the company will be, but is that all there is to it?

 

-I don't know what is par for the course in rights offerings, but upon reading documentation rights appear difficult to exercise.

-You get 26% of Charter, 100% of True Position, $3bil in deferred tax assets (vs. about 5bil market cap if every right is exercised?), a small holding in Time Warner Cable, and other unnamed small stuff.

-Malone will have at least 45% stake

 

"Charter's primary assets are its equity interests in its subsidiaries. Charter's operating subsidiaries are separate and distinct legal entities and are not obligated to make funds available to their debt issuer holding companies for payments on our notes or other obligations in the form of loans, distributions, or otherwise."

 

-What I get from this is that most of Charter's revs/exps will instead be capitalized on the balance sheet as equity instruments? Additionally, these subs are not under any obligations re: Charter/LibertyBroadband's debt? I don't understand how large a % of Liberty's Broadband this interest is, but behind the prospectus going on and on about how leveraged Broadband will be and this, it looks like a mini version of the spinoff that made Malone famous? Or am I not seeing things correctly?

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Patmo - looks like your math is right on the shares but I don't think you can just divide today's market cap across the number of shares.  The share count is right but the division of the market cap between Liberty Media and Liberty Broadband will depend upon the deemed value of the assets under each entity.  There's a pretty good discussion under the Liberty Media topic which shows the current discount vs asset value (you can apply the discount to either Charter within LB or Sirius within LM).

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Guest JoelS

Seems like every special situations investor will watch this thing now.

 

You would think the opportunity wouldn't exist if too many smart people are watching? What keeps me interested is the discount to NAV and my belief that those assets are at a minimum fairly valued.. thoughts on whether this opportunity is too obvious or priced in?

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No I mean that when Malone spins something off now, and he holds a large stake in it, everyone will pile into it. Since Greenblatts book is so popular, an Liberty media was one of the best investments in that book.

 

what is the best way to get in this thing?

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Patmo - looks like your math is right on the shares but I don't think you can just divide today's market cap across the number of shares.  The share count is right but the division of the market cap between Liberty Media and Liberty Broadband will depend upon the deemed value of the assets under each entity.  There's a pretty good discussion under the Liberty Media topic which shows the current discount vs asset value (you can apply the discount to either Charter within LB or Sirius within LM).

 

Well, that makes more sense. The $4.6bil 26% stake in charter, TWC at $400mil plus $3bil tax asset alone come up to $8bil. TruePosition is like a $60mil revenues a year business, so it doesn't seem to matter. I don't know what kind of leverage they intend on putting on broadband, but that initial prospectus seems to be trying hard to spook people into thinking it'll be in debt to the gills.

 

For some reason the pro forma BS on page F-35 doesn't account for the $300mil swap or the $3bil deferred tax asset ($8bil NOLs). At any rate, judging by this piece, debt would be something like $500mil total for broadband. Seems like nothing?

 

I wonder what Charter itself's intrinsinc value really is. Face value EV/EBITDA is about 10. I don't know what assets they are depreciating and how long they'll produce, but it makes up 2/3 of that ebitda. P/oCF is like 7. Doesn't seem terribly over or undervalued at first glance, although it has lots of debt itself.

 

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No I mean that when Malone spins something off now, and he holds a large stake in it, everyone will pile into it. Since Greenblatts book is so popular, an Liberty media was one of the best investments in that book.

 

what is the best way to get in this thing?

 

You're right, and I've been looking at a few recent spinoffs and none seem to be interestingly cheap. It could be that everyone started looking at spinoffs again since everything else was expensive.

 

I don't know if I even want to get in on this, I was just posting because it's pretty interesting and makes for good practice. I'll let the spinoff happen and see what people are going to trade it at.

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Charter has 12.8 million subscribers. But will they get more from Comcast or not? GCI does 600$ per subscriber right. Currently Charter does under 300$. If you think they can do 350$ in a few years, that is 4.48 bn$. Or equity value of about 17.5 bn$ . So not much upside there. But if you think they can come close to GCI at 500$ or something, then at 7x EV/EBITDA that is over 30 bn$ for the equity value.

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couldn't this whole thing be so Malone can issue debt on this spin off, buy back shares at Liberty at still a discount? And then when price discount to IV closes over time for liberty due to the structure being less opaque, they issue shares for acquisitions?

 

This is interesting (added bolted part myself):

Currently, there is no public market for our common stock. Subject to the consummation of the Spin-Off, we expect to list our Series A common stock and our Series C common stock on the Nasdaq Global Select Market under the symbols "LBRDA" and "LBRDK," respectively. Although no assurance can be given, we currently expect that our Series B common stock will trade on the OTC Bulletin Board under the symbol "LBRDB

why on OTC board? This will probably make a discount more likely?

 

My read on this is, they did a bid for Sirius, and then quickly cancelled it because shares of liberty are undervalued. It seems they do this transaction to use leverage to increase Liberty's value by buying back shares. And by making Liberty's value more visible. So shares are bought back, and then the share price will go up and gap between fair value and share price will close. Then they buy up the rest of Sirius using Liberty shares.

 

Meanwhile they can do a rights offering with the spin off entity to derisk their increased leverage. And by doing it this way, malone can try to participate in that rights offering more cheaply then when he did not seperate them into a attractive and a more unattractive entity.

 

It seems the value in this thing is the rights offering? OTC traded and probably a smaller market cap loaded up with debt and still somewhat opaque. So more likely people sell the shares then actually increasing their stake in the rights offering right? So how do you participate in the rights offering. Do you need to buy Liberty now? I don't fully get that part yet.

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1- Read the LMCA thread.  Because it explains a lot of things.

 

2- Yes, the rights offering allows LMCA to buy back shares.  Or to retire debt.

 

3- LBRDB has little volume, so having it trade on the OTC bulletin board would make sense.

 

4a- The rights will have the future ticker symbol LBRKR.  I don't think they will trade OTC.

 

4b- The rights will likely trade in line with LMCK shares.

 

-I don't know what is par for the course in rights offerings, but upon reading documentation rights appear difficult to exercise.

-You get 26% of Charter, 100% of True Position, $3bil in deferred tax assets (vs. about 5bil market cap if every right is exercised?), a small holding in Time Warner Cable, and other unnamed small stuff.

-Malone will have at least 45% stake

 

It's Charter that has massive deferred tax assets, not Liberty Broadband.

 

it looks like a mini version of the spinoff that made Malone famous? Or am I not seeing things correctly?

Doubt it.  But that's just my opinion.

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