Patrick Brennan, CFA of Brennan Asset Management and Robert Mori, CFA of Mori Huston Partners presentation on Liberty Broadband Corp (LBRDK) from the ValueX Vail, June 2015.
CHTR Recent History
- 2009: Charter files/reemerges from bankruptcy:
- 2012: Tom Rutledge becomes CEO
- 2013: Liberty invests $2.6B in CHTR (~27%)
- 2013-2014: CHTR makes series of offers for TWC ($114-$133)
- 2014: TWC/CMCSA agree to merger for ~$159
- 2014: CHTR agrees to series of swaps/divestitures with CMCSA
- 2015: CMCSA withdraws offer under regulatory pressure
- 2015: CHTR/TWC agree to merger for ~$195
Operation/Financing Dream Team?
- Tom Rutledge
- COO Cablevision 2004-2011; CHTR CEO 2012
- Considered pioneer of triple play offering
- CVC consistently held highest cable metrics
- Dr. John Malone
- CEO TCI Cable 1976-1996
- One of great capital allocators all time
- Predicts high teen/low 20% IRR on CHTR/TWC/Bright House
Liberty Broadband Summary
- CHTR/TWC/Bright House
- Scale benefits
- TWC spotty historical performance
- Broadband growth story
- Cost synergy sandbagging
- Cable anywhere traction
- Mobile wildcard
- Liberty Broadband=7-10% CHTR Discount
Current LBRDA
- $4.4B New LBRDA Stock (~78mm shares)
- LVNTA: $2.4B
- Coatue, Jana Partners, Soroban Capital: $2.0B
- Investments funded at LBRDA NAV
Cable=Great Business
- Limited competition
- Pricing power
- Recession resistant/supports leverage
- Customers hate you but still purchase
Broadband Pricing
- Cable performance during last recession very stable
- Cable TV / broadband far down on consumer savings list
- Overlap with Competing Fiber Offering – FiOS (Verizon) & U-verse (AT&T)
- High overlap with fiber doesn’t necessarily result in low penetration
Competitor Capital Structure Problem
- Dividend payouts for VZ/T are high and will be maintained.
- Capital flexibility for accelerated fiber build-out very limited.
- Telecoms need capital to buy additional spectrum.
Deal Summary
- TWC ($78.7 billion)
- $100 cash/0.5409 share of CHTR or $115 Cash/0.4562
- $2 billion break-up fee
- $800 million synergy target
- Bright House ($10.4 billion)
- $5.9 billon common units (convert CHTR shares)
- $2.5 billion preferred units (6% cash coupon/40% conversion premium)
- $2 billion cash
- Advance/Newhouse – FL strength
CHTR vs. Competition
Did CHTR Overpay?
Acquisition multiples:
- TWC: EV/2015 Ebitda 9.1x, incl. synergies & tax benefits 8.3x
- BHN: EV/2014 Ebitda 7.6x, incl. synergies & tax benefits 6.5x
- Recent deal comparables:
Major Model Assumptions
- Synergy sandbagging – ~2x management estimates
- Continue programming cost escalation
- Video subscriber loss
- Broadband penetration/ARPU growth
- $11B+ NOL gone by end of 2017
- >=4.0x leverage
Synergy Snapshot
- Liberty Global – Virgin Media: Closing Mid 2013
- Liberty Global – Ziggo: Closing Nov 2014
- Orig. synergy est. $160M: out of which $95M Opex (-24%),
- Already increased synergy estimate by 50% to $250M
See full presentation below.
This is an embedded Microsoft Office presentation, powered by Office Online.
