Author Topic: GLIBA/LVNTA - GCI Liberty  (Read 101444 times)

Sportgamma

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GLIBA/LVNTA - GCI Liberty
« on: August 11, 2012, 08:10:38 PM »
I´ve only gone over this briefly, so input from others would be greatly appreciated:

Linta recently split itself into linta and lvnta or Liberty Ventures.

The conversion was 1 lvnta share for 20 linta shares and according to the S-4 60% of long term liabilities would belong to linta.

So here are the market values:

Tracking stock   Ticker   Shares outstanding      Price per share      MarkCap
Interactive   linta   550.85                          17.52                               9,650
Ventures   lvnta     27.54                          45                                             1,239
Total                                                                                  10,890

Looking under the hood:

Interactive (LINTA)

Operating income                3Q11   4Q11   1Q12   2Q12   L4Q
Liberty interactive    224   408   258   290   1,180

+

Public   Ticker   Stake   MarCap   Stake ($m)
HSN Inc.   hsni   34%   2,520   856,8

Ventures (LVNTA)

Ventures                 ticker   Own%   MarCap   Stake ($m)
AOL                               aol   2%     3,170   63,4
Expedia                               expe   26%     7,390   1921,4
Interval leisure group   iilg   30%     1,080   324
Time Warner Cable   twc   2%   27,560   551,2
Time Warner Inc                 twx   2%   40,700   814
Tree.com                 tree   25%        158   39,5
Trip Advisor                trip   26%     5,000   1300
Total                                         5,013.5


Cash            790     
Debt            6374   
Net            -5584

Valuation

Together it could look something like this (assuming NPV10 for the ops) :


Together   $M
Interactive NP10   11,800
HSN Inc.                      856.8
Ventures     5,013.5
Cash                      790
Debt                   -6374
Value                 12,086.3
MarkCap                 10,890

Upside   11%

But if you brake it up, it seems that ventures is seriously undervalued, despite it consisting solemnly of publicly traded entities :

Tracker                 MarkCap                 Gross intr.   Net debt    Net intrinsic   Upside
Interactive   9,650.9                 12,656.8      -3,350.4          9,306.4        -4%
Ventures   1,239.4                   5,013.5      -2,233.6          2,779.9      124%

-----------

Edit: The tables got all mixed up. This should be a bit better:




« Last Edit: November 09, 2018, 05:32:42 PM by Parsad »


Olmsted

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Re: LVNTA - Liberty Ventures
« Reply #1 on: August 12, 2012, 08:56:06 AM »
Good call.  I calculated the NAV of Ventures as $116.50 on Friday (in line with your calculations above).  Last trade at $45 implies some serious upside if it trades closer to NAV.

A couple items to keep in mind:

-There is a rights offering (one right for every 3 Ventures shares outstanding, distributed to the pre-splitoff holders of LINTA).  The exercise will be set at a 20% discount to Ventures' first 20-day average price.  Let's say it trades up to an average of $50 for the next 20 trading days.  1/3 dilution at $40 would put the post-rights NAV at $99.  So the discount is not quite as great as it first seems, and the degree of discount does depend on how it trades these next four weeks.  It will still be substantial though.

-Ventures' assets are not necessarily value investors' favorites. 

-Various incarnations of the Malone Liberty family have often traded at discounts to their holdings, for long periods of time.  This has been especially true of the "asset-only", non-operating pieces like Ventures.  I guess the reasons have been the usual holding company issues, tracking stock structure, deferred tax liabilities (can't sell the holdings without paying capital gains), and relative opacity of the Malone leadership style.  And he has been known to shuffle and re-combine tracking stocks at terms that feel disadvantageous and arbitrary to one class or the other (like when LSTZA was combined with LCAPA not long ago).  On the other hand, Malone is a master of tax avoidance, and the structural shifts in the company are to that end.  Still, I would not expect Ventures to trade at my calculated NAV any time soon, if ever.  However, the discount may narrow over time.
« Last Edit: August 13, 2012, 04:54:51 AM by Olmsted »

Sportgamma

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Re: LVNTA - Liberty Ventures
« Reply #2 on: August 13, 2012, 11:52:43 AM »
Thanks for the response Olmsted.

Very good points.

I never really got it why they included the venture assets (that is all of the public stakes, except HSN) in Liberty Interactive to begin with and not just keep them in Liberty Capital. Do you see a scenario where they would try to pull Ventures into Capital? As these are now two separate publicly traded entities, it would be much more difficult for them to do then, for example, the LCAPA/LSTZA re-comb.


Olmsted

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Re: LVNTA - Liberty Ventures
« Reply #3 on: August 13, 2012, 12:49:17 PM »
I never really got it why they included the venture assets (that is all of the public stakes, except HSN) in Liberty Interactive to begin with and not just keep them in Liberty Capital. Do you see a scenario where they would try to pull Ventures into Capital? As these are now two separate publicly traded entities, it would be much more difficult for them to do then, for example, the LCAPA/LSTZA re-comb.

I can't begin to guess at what manouvring Dr. Malone is up to.  Yes - it seems that Ventures and Capital would naturally go together.  Could Malone combine them at some point, after spinning out Starz?  Sure - why not?  Perhaps this is why Starz is being spun.  But I really have no clue.

PlanMaestro pointed out to me in another venue that if you compare enterprise value to total assets, the discount is much less.  Which is probably a better way to think about MoS.  The company is levered with $3bn in debt.  So comparing $1.2bn in equity market cap + $3bn in debt to $4.85bn in investments + $1.33 bn in cash gives you a 33% discount enterprise value to total assets.  A 40% decline in Ventures' minority stakes would wipe that discount out.
« Last Edit: August 13, 2012, 12:51:32 PM by Olmsted »


Olmsted

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Re: LVNTA - Liberty Ventures
« Reply #5 on: August 14, 2012, 06:31:18 AM »
This guy, who clearly has a better understanding of Ventures than I do, thinks it's fairly priced right about now:

http://glennchan.wordpress.com/2012/08/14/liberty-ventures-not-that-interesting-at-40/

Really it comes down to the assumptions you make around the deferred tax liabilities.  With the leverage and the magnitude of the deferred tax liabilities, small changes in assumptions one way or the other can result in large swings in implied value.

ItsAValueTrap

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Re: LVNTA - Liberty Ventures
« Reply #6 on: August 15, 2012, 02:38:53 AM »
Quote
I never really got it why they included the venture assets (that is all of the public stakes, except HSN) in Liberty Interactive to begin with and not just keep them in Liberty Capital.
A long time ago, Interactive corporation split into:
HSN
Expedia
Trip
lending tree
???  (can't remember if there was another one)

HSN and Interactive/QVC obviously go together.  (Ok, you can make an argument for keeping them separate.  But as a pure play stock, it makes sense to lump the two together.)

So I *think* that is why those random stocks are in Interactive.

2- The exchangeable debentures are in Interactive because they throw off tax deductions.  The QVC business in Interactive generates lots of taxable income; Liberty Capital does not.

And with the exchangeable debentures you want to keep the Time Warner shares too because the TWX/TWC shares are a really good hedge for the debentures.

Quote
Do you see a scenario where they would try to pull Ventures into Capital?
I doubt it.  There's no synergy there.

I think the reason why Malone keeps splitting up all the companies is to create trading opportunities.
Malone can buy/sell shares of the various Liberty companies if they are over/undervalued. 
The individual stocks can use their shares are currency to buy other companies.  This sort of allows them to get rid of bad businesses.

On the other hand, easily understood stocks that are pure play tend to trade at a higher value than complicated conglomerates.  So this hurts the ability of some stocks to buy back their shares.  You can argue that it's good for Malone to have complicated tracking stocks so that they trade at a discount for long periods of time... therefore the companies can make easy money by buying back their shares.

This suggests that he is going to figure out how to sell off Starz.  It's a mature business without much in the way of growth prospects.  Sort of like a fully valued cigar butt than a See's Candies or a GEICO.
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Olmsted

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Re: LVNTA - Liberty Ventures
« Reply #7 on: August 15, 2012, 05:40:25 AM »
Here's a good "plain English" explanation of why they are doing yet another tracking stock split.  Bottom line is that LINTA can be valued more easily as an operating company that throws off cash, with all the complicated accounting/debentures/"weirdness" isolated in LVNTA.   Of course, that's just the official explanation.  There is undoubtedly a subtext/ulterior motive along the lines described by ItsAValueTrap above.

ValueTrap, it's also interesting that you bring up buybacks.  Greg Maffei said that their intention was to crank up buybacks at LINTA.  No mention of buybacks at LVNTA.  Actually - he mentions that the rights offering and cash at LVNTA is "not only to fund business opportunities but ensure adequate capitalization... and be able to handle its debt" - an explanation which makes buybacks seem less likely. 

Quote
Gregory B. Maffei, President & Chief Executive Officer

On February 23, we announced that Liberty Interactive was going to become two tracking stocks: Liberty Interactive, which we trade under LINTA and LINTB as it has, and Liberty Ventures. And for each share of Liberty Interactive, you get 1/20 of a share of Liberty Ventures or a 20-for-1 reverse split. And we’re in the process of doing that. We filed our amended S-4 this week. We are seeking a shareholder vote, which we anticipate to have in early July, and then we’ll close soon thereafter. We will not require an IRS ruling. So we’re well in process, we think, and we’ve had, as I said, good work with the SEC.

Some of you have asked why we are going back into tracker land. And our logic and rationale we hope that proves to bear fruit is that this will increase transparency and investor choice, providing investors who want to have an opportunity to invest in a focused Liberty Interactive around video and e-commerce, providing greater clarity and focus around our video and e-commerce assets and businesses, highlighting the operations and businesses that we have therein and the financial strength of those, simplifying our story in Liberty Interactive, better aligning us for people who look at retail and e-commerce, better aligning us for a purer comparison, and isolating the complexity that is inherent in Liberty Interactive into Ventures.

At Ventures, we hope to highlight some of the investments we have that are not significant within the context of Liberty Interactive today to become meaningful inside Ventures. We think it’s the same pitch that we have with Liberty Capital to bet on management, of Liberty’s ability to over time clarify, reduce the discount, simplify, and create value. We obviously have some tax advantages inside Liberty Ventures which are complicated. We think that certain investors will appreciate an opportunity to invest in those and others will prefer to be isolated from those. As always, we look, when we have this clarity to be able to raise capital more efficiently at either entity. And we think the tracking stock structure maintains tax efficiency.

So just to highlight for one second, I think as most of you know, the major assets inside of Liberty Interactive will be QVC, which we’re here to talk about primarily today; our e-commerce companies, which are the specialized niche e-commerce companies that we have; our 34% interest in HSN; and cash of approximately $0.5 billion. And I say approximately because it depends on what we draw on the revolving credit facility and what cash we earn between now and close.

On the liability side, we’ll have the $2 billion of bonds that are at QVC today. We’ll have our $2 billion revolving credit facility, of which we expect somewhere about $1.4 billion will be drawn. And we’ll have the senior notes that are up at the Liberty Interactive level that we call our straight debt, the $309 million issue, the $287 million issue, and the $504 million issue.

Everything else will go into Ventures. And by that we mean our non-consolidated assets you can see here, AOL, Expedia, Interval, Time Warner, Time Warner Cable, Lending Tree, TripAdvisor, and the small amount of green investments we’ve done today in things like a leveraged lease in a wind facility and a coal transformation plant which reduces nitrous oxide to mercury, and cash of about $1.6 billion. Obviously, that cash value is moving around depending on how we settle out on some of these assets. We had originally thought we would go out with about $1.25 billion. But as we’ve made credit liquidity events [at] TripAdvisor, we’ve increased the amount of cash that will be there. On the other side, with all the exchangeable debentures, many of which have favorable tax characteristics that we talk about and have a degree of complexity, so we tried to isolate all the complex assets, non-consolidated assets that are not core to our e-commerce efforts and all the debt that is complicated into this one venture.

People have asked about our subscription rights offering that we’ve talked about with this. And the goal first of this is to raise incremental capital for Ventures. Why do you care, why should you care as potentially a Liberty Interactive investor in Ventures capitalization? Because they are tracking stock, both parts are liable for the debt. We want to ensure that Ventures is well capitalized to be able to handle its obligations as they come due and never need to rely on Interactive. We believe that is the case as we built cash at Ventures. But by funding incremental cash to this rights offering, we hope to ensure that.

And as we’ve talked about, we expect that you’ll have one subscription right for every three shares of Liberty Ventures as that tracking stock is distributed. These rights will give you a subscription price, the right to buy the stock of Liberty Ventures at a 20% discount to the . . . first 20 days of trading stock price, the VWAP [Volume Weighted Average Price] over those first 20 trading days. And as that becomes traded, we’ll know the rights will become traded. The rights offerings expire 20 days after the price is set, and you’ll have the opportunity to buy more stock if you so choose or sell the rights. As I mentioned, really this is not only to fund the business opportunities but ensure adequate capitalization at Ventures and be able to handle its debt.

Now we think both of these sides will be very well capitalized, and in particular Liberty Interactive given its revolving credit facility, its relatively low leverage, and the continued free cash flow it has been generating, we expect it will generate, should have an opportunity to have major share repurchase. That has been our strategy at Liberty Interactive. I expect that will continue to be our strategy at Liberty Interactive. We will go out and look for incremental e-commerce opportunities. We’ll look to do other things. But first and foremost, I expect we’ll be repurchasing stock. This chart shows how much stock we have bought back. And you can see that we’ve driven down the share count substantially. And I said I expect we’re going to continue to drive it down.

http://www.sec.gov/Archives/edgar/data/1355096/000110465912040342/a12-5904_5425.htm
« Last Edit: August 15, 2012, 05:48:20 AM by Olmsted »

ItsAValueTrap

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Re: LVNTA - Liberty Ventures
« Reply #8 on: August 17, 2012, 04:44:14 PM »
Btw Olmsted, you linked to my blog.  :)  That is me.

1- Buybacks:  At LINTA I think it definitely makes sense as it is a nice business with growing free cash flow.  I haven't read its 10-K yet or done research on it though.

On the other hand, I note that insiders are selling their LINTA shares.  Sometimes I wouldn't read too much into insider selling... sometimes sales occur when the stock is cheap (Bill Gates didn't sell during the Internet bubble but is selling now to fund his charity).  Sometimes people just want to diversify instead of putting all their eggs in one basket- your significant other might freak out that almost all your net worth is tied to the fortunes of one company.  The insider sales might mean something, or it might now.

1b- On a superficial look at LINTA, the e-commerce side seems just ok.  I feel like the ecommerce/Internet retailing market as a whole has grown faster than Interactive's... but I am not 100% sure.  Certainly, Amazon and Google (their ad revenues is mainly from online retailers in my opinion) have grown faster than Interactive's ecommerce.  But their ecommerce properties aren't terrible either.  It's just that sometimes you don't want to own a second-tier company... look at what happened to RIM's share price lately (I own RIM).  It will be really scary if Amazon (or even Walmart) can use their scale to have highly efficient warehousing and distribution systems that make them the lowest cost online retailer.  We could move into a world where the distribution of profits becomes extremely uneven where the first-tier companies make almost everything and the second-tier companies (some of Interactive's ecommerce may be second tier or worse) get pushed out and can only hang onto a small specialized niche.
Maybe I am paranoid.

There are definitely companies a lot worse than Interactive's ecommerce like Bidz and (not sure if I should say this here) Overstock.  I would be too paranoid to own those stocks.  I just feel like it's a much better idea to find the See's Candies of online retailers (Amazon) and buy them if their valuation is reasonable (Amazon is overpriced).

2- I would happy to own Interactive and Ventures at current prices.  I just didn't buy any.  I don't think that Ventures is clearly undervalued right now.  It's sort of like owning Wesco- great management but the underlying business is just ok (whereas Berkshire Hathaway has first-tier companies like GEICO).  It's ok to own Wesco when it isn't trading at a discount.  It's just that I'd rather buy it cheap.

3- It's possible that I have miscalculated how much cash Interactive transferred to Ventures.  But because I don't know the right answer... I will err on the conservative side for now and read the 10-Q when it comes out.

4- Regarding Patrick Brennan's presentation on LVNTA linked to earlier:
http://www.scribd.com/doc/98323186/ValueXVail-2012-Patrick-Brennan

His calculation of fair value is far higher than mine and that is *after* a 25% complexity discount.

I see his comparable yield figures (for the exchangeable debt) and am not sure about them.  I have read the S (S-4?) filings of Liberty's debt and the comparable yield figures are different for the same series of debt. 

I believe he made a mistake on the value of Ventures' stocks... you need to account for the tax that needs to be paid on them as their market values are far above their carrying values and their cost basis.

In terms of the cash, he may or may not be counting things twice.  e.g. EXPE and TRIP shares were sold... you need to be careful not to count the shares *and* the cash from the sales.

5- I think the exercise at LVNTA is selling its old businesses at good prices in a tax-efficient manner.  And hopefully they can re-invest that into new businesses with attractive economics (hopefully See's Candies type business, green businesses with tax-advantaged characteristics, odd situations like Sirius, etc.).

It's unclear to me if Malone is seeing a lot of great opportunities out there.  (It's not like it's 2008/2009 anymore.)  The leveraged lease on a wind facility suggests that he is getting into utilities.  He hasn't bought anything in the media sector for a while (his historic bread and butter), possibly because of the impact of the Internet on the sector (piracy, IPTV, shift towards online content, etc.).

Malone personally owns one of the largest cattle ranching business or something like that.
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rimm_never_sleeps

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Re: LVNTA - Liberty Ventures
« Reply #9 on: August 17, 2012, 06:06:52 PM »
it looks like you have about a $60 difference in your valuation with the one presented at valuex. thanks for preparing yours by the way.

Let's say his fair value is $100; but he thought it would deserve to trade at $75 post rights due to complexity.

I'd like to go at this from a slightly different angle and maybe do some triangulation to back into an alternative way of approaching this situation. An investor might use a similar approach, combined with rigorous valuation work, to his advantage as he contemplates the merits of lvnta.

What do we know about spin offs? well we've all read the great Greenblatt book. And that's why we like to look at them. He believes that a lot of spin offs come out undervalued. he says you could focus on this one area of the market and do very well.  It's kind of the nature of the beast. If you follow his thinking, it almost has to be that way. Even Moody's came out undervalued.

Be that as it may. They certainly don't Have to come out undervalued. But we do know the odds favor it. lvnta is even a little dicier than the average spin-off. It has lots of funky qualities that might make it even more "special" than a normal spin off. I mean even hard core number crunching value investors don't seem to want any part of it. And if they don't who does? It's extremely complex. A lot of work doesn't necessarily pay-off in certainty.

But let's get started.

Does a uniquely complex security have more of a chance to come out undervalued or fairly valued? My guess would be Undervalued.

Given who owns this stock, are investors more inclined to keep linta and sell lvnta or keep them both? My guess is they are more inclined to sell lvnta.

Given the nature of tracking stocks. Are they more popular or less popular than Ccorps? I would say Less popular.

Given the nature of Lvnta collection of assets, is that a collection that people would want to own, or have to own? I would say neither. It's structured in a way to make people not want to deal with it.

Given that it was spun off in early august into a dull market with little fanfare and zero media attention, is that more likely to produce a security that is fairly valued or undervalued? I would guess undervalued.

Given the size of the company (small cap) and the small number of shares outstanding, and people not wanting to mess with a rights offering, does that make it more or less likely that larger institutions would sell lvnta or hold it or buy it? I would guess Sell it.

Given that there are no sell side analysts really sponsoring this thing with very little incentive to do so, does that make it more likely it would be undervalued or fairly valued? I would say undervalued.

What I am getting at here is by examing all these various factors (call them technical if you like) one can kind of come to a "qualitative" opinion, irregardless of the complex valuation, whether it is more likely or less likely to be trading at fair value. Taking all of this under consideration, my opinion is that it's way less likely to be trading at fair value, and likely trading undervalued. Your conclusion may be different.

Finally, you have the Malone factor. When he has a pile of assets in front of him, he has a history of creating massive shareholder value. So even people who buy liberty's various stocks at fair valuations have done very very well because of his team's unfailing value creation. It can give an investor confidence that he doesn't have to get the bottom tick to do very well over time.

Once again thank you for taking a crack at the valuation.That's way more than I did. I really appreciate the Bresnan valuation as well. These reports give us two really good starting points, and combined with the above observations (speaking for myself), helps each investor decide what to do next.

regards
« Last Edit: September 07, 2012, 01:45:37 PM by rimm_never_sleeps »