Author Topic: GNCMA - General Communications  (Read 128040 times)

Packer16

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GNCMA - General Communications
« on: April 22, 2013, 06:19:06 PM »
One of the two publicly Alaskan telecom providers.  GNCMA provides TV, phone, internet and wireless communications services.  What is impressive is they the only US telco to increase organic revenues and cash flows over the past 5 years.  The declining telco portion of the business is only 15% of revenues with data and video representing over 50% of revenues and wireless the remaining 35%.  They are combining their wireless properties with ALSK to compete against AT&T and Verizon.  The CEO is a student of John Malone and started GNCMA from scratch.  Management bonuses are tied the EBITDA and FCF growth.  It sells for 5.0x EBITDA which is cheap for a cable + operator.  SureWest and smaller operator who had a larger telco component was purchased earlier last year for 6.3x EBITDA.  If that multiple is applied to GNCMA it implied a 90% upside.

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alpha23

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Re: GNCMA - General Communications
« Reply #1 on: April 23, 2013, 08:36:59 AM »
I think that this idea has some potential for sure. I'm not entirely convinced that long GNCMA is the best way to express the potential though.

Packer, what do you think about the situation with ALSK and Verizon, i.e. that Verizon bought a big chunk of land right behind ALSK's headquarters (good write-up on that situation here: http://goo.gl/Fhx7I ). It seems like there are a few different ways this could play out, one likely one being that Verizon acquires one or both of ALSK and GNCMA. There is a good natural moat in the development of infrastructure in Alaska and a higher than normal use of communication services. Combine that with a couple of comparatively cheap telecoms and it is an interesting situation...

 

Packer16

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Re: GNCMA - General Communications
« Reply #2 on: April 23, 2013, 10:15:13 AM »
An interesting opportuntity but GNCMA is in a better negotating position than ALSK (who still is in financial distress).

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alpha23

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Re: GNCMA - General Communications
« Reply #3 on: April 23, 2013, 10:50:41 AM »
Yes, for sure I agree. ALSK is in a pretty weak financial state presently. Do you happen to know if GNCMA and ALSK have any binding agreements regarding AWN and future sale? Seems that it could become more difficult for GNCMA If Verizon or AT&T bought ALSK.

LC

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Re: GNCMA - General Communications
« Reply #4 on: April 23, 2013, 01:18:00 PM »
An interesting opportuntity but GNCMA is in a better negotating position than ALSK (who still is in financial distress).

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I'm reading through the filings now, they note that ALSK will be using all the $100m proceeds to pay down debt/increase cash reserves.
« Last Edit: April 23, 2013, 01:46:56 PM by LC »
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LC

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Re: GNCMA - General Communications
« Reply #5 on: April 28, 2013, 06:39:10 PM »
Did a quick back-of-the-envelope 10 year summary of operations:

Operating cash produced: $1,275
Capital investment: $1,299

Share repurchases: $245
(reduced shares outstanding by 25% over 10 years)

I like how GNCMA has levered up to buyback shares versus paying dividends. Provided they retain their customers, they can lever up a bit more (especially in this low interest rate environment). Although I'm not sure that's the best move if they are trying to shop themselves (or compete with) Verizon.

The AWN deal looks like an economically smart deal. ALSK starts digging itself out of a financial bind, GNCMA increases its wireless coverage.

But Packer...can you comment on the cash flows of the deal? My understanding is that both companies surrender their wireless assets (and revenues), then are paid by AWN per the terms of the deal? I see about $30-40MM flowing to GNCMA from AWN over the first 4 years, however GNCMA would lose its current $60MM in wireless EBITDA, therefore the deal is dilutive?

The Seeking Alpha write up previously posted made a great case for Verizon to acquire ALSK. However that has not happened...in the meantime, ALSK and GNCMA have "sold" their wireless assets to AWN. Perhaps a deal is in order to sell AWN to Verizon, after ALSK extracts cash up front to whittle down its debt, and then leaves GNCMA with the majority of the upside from the sale of AWN? Then VZ can enter the marketplace solely as a wireless provider, while GNCMA/ALSK can continue to provide landline/television service.
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Packer16

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Re: GNCMA - General Communications
« Reply #6 on: April 28, 2013, 06:59:20 PM »
Both ALSK and GNCMA give different EBITDA estimates.  ALSK @ $120m and GNCMA @ $127m plus $30 m of synergies.  A portion of the AWN is roaming which may be lost if VZ enters the market.  My initial take on AWN was defensive one to prevent VZ from buying ALSK.  However, together they make a nice acquisition target for VZ as VZ doesn't have to build infrastructure and will control 2/3 rds of the market, AT&T will still have 33%.  In addition, this deal will delever ALSK nicely and provide them some powder to expand their broadband service.  If ALSK bonds rally to par I think the stock will do nicely.

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LC

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Re: GNCMA - General Communications
« Reply #7 on: April 28, 2013, 07:12:52 PM »
Both ALSK and GNCMA give different EBITDA estimates.  ALSK @ $120m and GNCMA @ $127m plus $30 m of synergies.  A portion of the AWN is roaming which may be lost if VZ enters the market.  My initial take on AWN was defensive one to prevent VZ from buying ALSK.  However, together they make a nice acquisition target for VZ as VZ doesn't have to build infrastructure and will control 2/3 rds of the market, AT&T will still have 33%.  In addition, this deal will delever ALSK nicely and provide them some powder to expand their broadband service.  If ALSK bonds rally to par I think the stock will do nicely.

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Very interesting...if AWN is the target of VZ's entry, it seems like ALSK has better exposure from a risk/reward point of view? Their market cap is 1/5th of GNCMA's yet they control 1/3rd of AWN.
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Packer16

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Re: GNCMA - General Communications
« Reply #8 on: April 28, 2013, 07:20:19 PM »
If that is VZ's intention but I don't know.  In a standalone scenario, GNCMA is in a much better position than ALSK.  If the market thought this was the case then the ALSK bond would trade near par so the purchase AWN scenario is not anticipated by the market but I think it is a reasonable scenario.

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alpha23

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Re: GNCMA - General Communications
« Reply #9 on: April 28, 2013, 08:50:52 PM »
I can see the value in GNCMA, and I see some potential for a media moat in their expanding content offerings. I am stuck on how much of a wildcard Verizon is at present. They are reportedly building out their own towers there over the past two years, so perhaps an Alsk buyout is not imminent even though it seems to make sense. Given either scenario, I'm just not sure how much Verizon will hurt GNCMA established business. Seems like it is a bit of a pain for Alaskans to work with Verizon now vs. GNCMA. I also like the share repurchase strategy. Seems like it and the uncertainty with Verizon / AT&T has kept the stock cheap.