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

Liberty Broadband

  • $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

Liberty Broadband

  • Cable performance during last recession very stable
  • Cable TV / broadband far down on consumer savings list

Liberty Broadband

  • Overlap with Competing Fiber Offering – FiOS (Verizon) & U-verse (AT&T)

Liberty Broadband

  • 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.

Liberty Broadband

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

Liberty Broadband

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:

Liberty Broadband

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 Broadband

  • Liberty Global – Virgin Media: Closing Mid 2013

Liberty Broadband

  • 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.