john malone and his cable media empire

7/23/2015 JohnMaloneandHisCable/MediaEmpire

http://www.jnvestor.com/malone/ 1/58

JohnMaloneandHisCable/MediaEmpireIvebeenmeaningtowriteaboutMalonesempiretosolidifymythoughtsandnotesintoasinglepost.AnotherreasonisbecauseLMCA/KandLBRDA/KaresomewhatmaterialinvestmentsformesoithelpstoreviewthereasonswhyIlikethemsomuch.

ThisalsogivesmeanexcusetolookatotherpartsofhiscompaniesabitmorebetterthanpreviouslyandcreateareferencepostwhereIcancomebacklatertocheckandaddthings.

Thatbeingsaid,thispostisabitlongandmessy.Iprobablyshouldhavesplititup,butIwantedtotryhowitgetsreceivedthisway.Also,sorryfornotdoingthetldrsthistime.

TakeintoconsiderationthatwithalltheNAVcalculations,spreadsheets,theresboundtobesomemistakes.(ifyouspotanypleaseleaveacomment).

AnotheroutsiderJohnMaloneisoneoftheoutsidersfromTheOutsidersbook,similarlytoTeledynesHenrySingleton.

HebecametheCEOofTeleCommunicationsInc,orTCI,whichreturnedincredible30.3%CAGRoverperiodof25yearsuntilitwassoldtoAT&Tatanicepremiumin1999.HisperformancewasthebestoftheCEOsfeaturedinthebook.

WhenMalonestartedasCEOofTCI,thecompanywasonthevergeof



bankruptduetoexcessdebt.Ultimatelyhedidmanagetosurvivebypinchingthepenniesforyearsanditwaspresumablyduringthattimethathelearnedalotaboutusingleverage.

Malonesstrategyconsistedoffewkeyelements:

1. Decentralized,lowcostoperations.Hecreatedastrongculturewithamixofincentivesandautonomy.

2. Smartcapitalallocation,accretivebuybacksatlowpriceandissuingequityforacquisitionsathighprice.Horizontalandlaterverticalintegrationatgoodpriceswereattheheartofhisstrategy.

3. Financialengineering,mostlyvialeverage4. Taxefficiency>emphasisoncashflowsandgrowth.TCIalmost

neversoldanassetunlesstherewasataxangletoit.

SimilarlytoSingleton,withcapitalallocationdecisionshedidwhatwassmart,notwhatwasexpected:

Itmakessensetomaybeselloffsomeofoursystemsat10timescashflowtobuybackourstockat7times

TCIgrewmostlybyrollingupthefragmentedcableindustry,butinsteadofbuyingeverythingtheycan,Malonewasveryprudentaboutthepricethathepaid.(usually5xcashflowsaftersynergies)

InthelatterpartofTCIshistory,hestartedtobuystakesincontentcompaniestogetcontroloftheprogrammingandcontentthatthecableoperatorscarriedontheirsystems.Maloneacquiredaround30differentcompaniesfromcontentsideinthe80s(CNN,Starzetc.)

Finallyin1998hesoldTCItoAT&Tat40%premium.Soonafterthathewatched$3.5bnofhisownnetworthtodeclinerapidlybecauseAT&Tmanagementdestroyedvalueincrediblyquicklybyoverpayingforacquisitionsandmismanagingtheirassets.

Malonewasntabletodoanythinghecouldntevensellhisstockbecauseof



restrictions.Thisismostlikelywhyhestartedtovaluecontrolsomuch.

UltimatelyhemanagedtospinLibertyassetsoutofAT&TandthatsbasicallyhowhiscurrentLibertyempirecametoexist.GreenblatthadtherightsofferingasanexampleinhisfamousbookYouTooCanBeaStockMarketGenius:

Therightsoffering/spinoffwasstructuredsothatitwasverycomplicatedandthattherewouldbemassiveupsidetothosewhoparticipated.Thegeniuspartwasthatitsimultaneouslydiscouragedmostinvestorstotakepartinit.Anyonecouldhavepurchasedandexercisedthoserightssotherewasalotofmoneytobemadeforthosewhodidtheirdiligence.

Theprospectusofthedealwasalmost400pageslong,soitgivesyousomeideaofthecomplexityofit.EvenBobMagness,thefounderandmajorshareholderofTCIdidntunderstanditverywell.

Ibelievethisrightsofferingistheonethingthatsgrindingsomepeoplesgears



aboutMalonesintegrity:thedealwasclearlystructuredsothatpeoplewouldbediscouragedtoparticipateiniteventhougheveryonehadtheequalopportunityto.

IbelievethatfromMalonesperspectivetheimportantpartisthechoice.IpersonallytaketheviewthatifMalonewouldwanttoenrichhimselfatthecostofshareholders,hecoulddothat.

Afterfollowingwhathesdoneovertheyearsandhowmanypeoplehehasmadewealthierthroughhiscapitalallocationskills,IminclinedtothinkthathesfairtoshareholdersofLibertyentities.

Idounderstandhispointofviewtooandwhyhewantedtofinallygetpaid:heleadTCIfor25yearsandhadasmallpositioninthecompanydespitemakingotherpeople(likeBobMagness)verywealthy.

ThesectioninGreenblattsbookiswellworthreadandthiswasjustapartofitinrealityitwasabitmorecomplex.IalsohighlyrecommendthebookCableCowboywhichtellshisstoryandthehistoryofthemoderncablebusinesses.

Maloneonleverage(andwhyhelovesit)Ilikeleverage.Ithinkleverageisyourfriendifyouareprudent

aboutit.Particularlyifthegovernmentmakesittaxdeductible.

Thesenotesaremostlyfromthe2012Maverickslecture(Highlyrecommendedwatch):

Cablehasbeenhistoricallybeenabletosupport5xEBITDAleverage,butitdependsoninterestratesIftheyarentfindingacquisitionsandyourcashflowgoesup,theytakeleverageupandshrinkequitywithbuybacksWithhighleverageyoumusthavesomeliquidity,like0.5xEBITDAtoavoidliquidityproblemVariouscompaniesusedifferentleverageprofiles,acompanywithaflywheel,astableutilitylikenature(suchascable)willcarrymore



leverageForMalonehedginginterestratesisareligionandtheyvealwaysswappedtofixedTheyarealwaysrollingmaturities,movingthembackandloweringratesifpossibleHedginginterestratesandrollingthematuritiesmakesitsothattheyhavevisibilitywiththeirdebtandinterestsTheydontusuallyspeculatebyissuingdebtwithoutuseofproceeds

Iusedtosayinthecableindustrythatifyourinterestratewaslowerthanyourgrowthrate,yourpresentvalueisinfinite.Thatswhythecableindustrycreatedsomanyrichguys.Itwasthecombinationoftaxshelteredcashflowgrowththatwas,ineffect,growingfasterthantheinterestrateunderwhichyoucouldborrowmoney.Ifyoudoanyarithmeticatall,thepresentvaluecalculationtendstowardinfinityunderthatthesis.

LeverageisintrinsicpartofthebusinessesthatMaloneowns,soIwantedtoclarifymyownthoughtsandseehowitwilllooktheoreticallyonamadeupcablecompanysfinancials:



With5%growthforEBITDAof1000,keepingthe4Xleveragemultiple(standardforMalonescablecompanies)and6%interestrate,theycaninvestorbuybackshares4xtheamountthatEBITDAincreasedfortheyearinissueddebtalongwithwhatevertheyllhaveleftafterpayingforinterest,capexandtaxes.

Ihavetoemphasizethatthisonlymakessensewhenyouhavegreatoperationalskills,utilitylikeproductsandgrowingcashflows.Alotofbusinesseshavegonebankruptbecauseoftoohighleverageandtoolowunderstandingoftheriskssoitdoesmakesensetobecareful.



MalonescableplaybookItsnotaboutearnings,itsaboutwealthcreationandleveredcash

flowgrowth.

SincehemanagedtospinLibertyoutofAT&T,hehasbeenbusyrollingupEuropes(andmorerecentlyUSandLatinAmericas)cableassets.Herearemyinterpretationsofhisplaybookandhowhemanagestobuyandoperatethesecompaniesbetterthanotherpeople:

Firstofall,hedoesrigorousduediligence:Heknowstheindustryprobablybetterthananyoneandthusitshighlyunlikelythathedoesbaddeals.Mostofthetimefromtheoutsideitsnotalwaysclearhowthedealhemakesisgood,butonceyouknowsomeoftheplaybookitsabiteasiertofigureout(Theresprobablymore,butIthinkthesearethemostimportantones):

Operationalimprovements,Maloneknowstheinandoutsofthecablebusinessandthushecanputhisownpeopletorunthebusinessesbetterthanthepreviousmanagement.Thisusuallymeansenhancingproductofferings,newproducts,etc.SynergiesProgrammingcostsareahugeone,operationalsynergies(forexample,theycanusescaletogetcheapersettopsfromsuppliers),financialsynergies(sometimesiftheacquiredcompanyhasverylowdebt,thetransactionisdeveleringforMalonescompany),economiesofscaleOptimizingthebalancesheet.MostofthetimethismeansthatMalonetakestheleverageoftheacquiredcompanyup.Thisispossible(andlessrisky)mostlybecausehisCEOscanoperatethecompanyalotbetter,achievehighergrowthandhighercashflows.Hecanprioritizethelongtermview.Somecompanies(liketelcos)paydividendsanddontinvestmuch.WithCharter,ithasntgeneratedmuchFCFbecauseRutledgehasalongtermviewofthebusinessandhesinvestingheavilyinit.Maloneenablesthiswith



strongcontrol.

WhenLibertyGlobal/Charterbuysacompany,theyarealwaystryingtouseasmuchdebtaspossible.Someamountofequitywillsometimesbefineespeciallyifthevaluationishigherthanthecompanytobeboughtinthatcasethetransactionwillbeaccretive.

ShareclassexplanationsMalonescompaniesalmostalwayshaveshareclassstructurethatgoesasfollows:

1. SeriesAsharesarenormalvotingshareswith1vote/share(LMCA,DISCA,LBRDAetc.)

2. SeriesBsharesaresupervotingshareswith10votes/share,Maloneusuallyownsmostofthese(LMCB,DISCB,LBRDBetc.)

3. SeriesCsharesarenonvotingshares.Theseareoftenusedascurrencysothatvotingsharesdontgetdiluted.(LMCK,DISCK,LBRDKetc.)

Allshareclassesareentitledtosameamountofeconomicincome.Ifyouarebuyingsomeofhisstocks,youshouldbuytheonethatscheapestusuallyseriesCshares,butsometimestheseriesAsharestradebelowCsharesmomentarily.(likeLBRDAvsLBRDKrecently)

TrackingstocksIregardthemaslargelytransitory.Ifyouareincubatinga

company,butitsnotreadytostandonitsown,trackingstockisagreatwaytoidentifyit,focusalightonit,raisecapitalforiteven,butnotseparateitandmakeitstandonitown..yet

SomeofthestocksinMalone/Libertycomplexaretrackingstocks:

1. LibertyGlobalgroup>LibertyGlobal(LBTYA/LBTYB/LBTYK)



andLibertyGlobalLatinAmerica(LILA/LILAK)2. LibertyInteractive>QVC(QVCA/QVCB)andLibertyVentures

(LVNTA/LVNTB)

Trackingstocktrackstheeconomicperformanceofasubsidiaryofacompany.

Forexample,LibertyGlobalrecentlycreatedatrackingstocksfortheirLatinAmericaoperations(LILA/LILAK).Thiswayinvestorscaninvestineither(EuropeorLatinAmerica)operations,butbothcompanieswillbenefitfromtheconsolidatedbalancesheet(scaleadvantages).

Trackingstocksprovidefollowingbenefitswhencomparedtospinoffs:

Taxsynergiesiftherestwocompaniesunderoneumbrellaandotheronesprofitableandotheronesnotbecauseitsgrowingfast,theycansheltereachotherstaxes.Operationalsynergiesbecausebothcompaniescanberunbyonesetofemployees.ScaleadvantagessavemoneywithprogrammingcostsandsuppliercostsFinancialsynergies/consolidatedbalancesheetforexampletheycangetcheaperdebtProtectionfromantitrustlaws

Thisapproachisunconventionalandmightbeproblematicunlessyouhavestrongcontrollingowner.Malonehassaidthattrackingstockshaveworkedforthembutnotforothersmostlybecausehecontrolsthecompanies:

Iftheresonlyonebananasplitandtherestwokids,howdoyoudecidewhogetsthebananasplit?Well,yougottohaveastrongparent

SpinoffsInadditiontotrackingstocks,Malonelikestodospinoffswhenitmakes



sense.Hedoesthisforafewreasons:

TounlockvalueIfheplanstosellormoreusuallyswaptheasset,hespinsitoffTheycanusetheclassCsharesascurrencytoacquiresomethingelseforexampleLibertyBroadbandwasspinnedtoholdCHTRstakeandLBRDKendedtobeusedascurrencyintheCHTR/TWCdeal+ReasonsIforget

Inadditiontoallthese,itcreatesalotmoreopportunitiesthroughoptionality.ConsiderforexampletheDiscoveryspinoff:iftheyhadntdonethat(andifMalonehadntgivenupcontrolthere),futureM&AwithCharterwouldprobablyhadhitmoreroadblocksbecauseofverticalintegration.(OrthisishowIthinkitcouldhaveaffectedit)

GlennChancreatedthisamazingdiagramofthespinoffsandtrackingstockssinceTCIdays(hekindlyletmeuseithere):



Asyoucansee,hehasbeenbusy.

Maloneownerships



UnfortunatelyIcouldntfindthesourceforthisimage(forcredits/permission),butitssoawesomethatIcouldnthelpbuttopostit.

Whatsamazingisthatall/mostofthesecompanieswerespinnedofffromtheoriginalLibertycompanythathegotoutwithfromAT&T.

Herestherecap:

1.LibertyMediaCorp(LMCA,LMCB,LMCK),votingpower47.1%,economicvalue9.2%,Chairman



2.LibertyBroadband(LBRDA,LBRDB,LBRDK),votingpower47.1%,economicvalue9.2%(BeforeCTHR/TWCdeal),Chairman

3.LibertyGlobalGroupbelowincludestrackingstocksLibertyGlobalandLibertyGlobalLatinAmericaandCaribbean,Chairman

LibertyGlobal(LBTYA,LBTYB,LBTYK),votingpower25%,economicvalue2.7%LibertyGlobalLatinAmericaandCaribbean(LiLAC)(LILA/LILAB/LILAK),~sameasinLibertyGlobal

4.LibertyInteractivebelowincludestrackingstocksQVCandLibertyVentures,Chairman

QVCGroup(QVCA/QVCB),votingpower37%,economicvalue6%LibertyVentures(LVNTA/LVNTB),votingpower33%,economicvalue6%

5.LibertyTripadvisorHoldings(LTRPA/LTRPB),votingpower4%,economicvalue6%

6.Starz(STRZA/STRZB),votingpower33%,economicvalue6%

7.Discovery(DISCA/DISCB/DISCK),votingpower29%,economicvalue5%

8.AscentCapital(ASCMA/ASCMB),votingpower16%,economicvalue4%

9.Lionsgate(LGF),3%stake

InsidertradesSoifyoulookatMalonesinsidertradingyouseehimsellingsmallpiecesofhisholdingsalmostallthetime.Checkthetradesfromopeninsider.comNoticethattheresabugthatshowsthathessellingAshareswheninrealityhessellingnonvotingCshares.

Ipersonallywouldntlooktoomuchintohissmall,$15msells.



Forexample,hisLibertyMediastakeisworthsomethinglike$1.21.3billion,soifhesellslike$5mworth,thatsaslittleas0.4%ofhisholdings.Becausehiscompaniesdontpaydividends,sellingistheonlywaytogetcashoutofthemsoitmakessense.

Ithinkthatsfair.Themansalready74yearsold,sowhynotbuysomethingnicewhileyoustillcan?Ofcourseifhedsellabigstakeinacompany,thatwouldwarrantforcloserexamination.(Heusuallytriestoswapthemtoavoidpayingtaxes,though)

Ifhebuyssomething(whichIthinkissomewhatunlikelywithoutbigdistressinprices),thatssomethingdefinitelyworthlookinginto.LasttimeheboughtwasLMCAinJune2013$2mworth.Lastbiggerbuyshedidwasin2012.

LibertyMediaCorporation(LMCA/LMCB/LMCK)Since2006,includingallthespinoffs,LMChascompoundedatroughly30%CAGR.AlotofthisisbecauseoftheirincrediblyprofitableinvestmentinSiriusXM,whichhassofarbeena20+baggerin5yearsorso.

LibertyMediaisbasicallyahighlyconcentratedfundwhereyoullgettoinvestalongsidearguablythebestcable/mediainvestoroperatorever.Youcouldofcoursebuywhathebuysandmostlikelycomeoffwell,butyoudbemissingouton,forexampleaccretivebuybacks,possiblefuturedealsattheLMCandtheVivendisettlement(moreonthatbelow).

LMCAownsover50%ofSIRIandconsolidatestheiroperationsintheirbalancesheets.Inadditiontothat,SIRIstrueprofitabilityisstillmaskedasithashighfreecashflowbutrelativelylowearnings.Thismakesthecompanylookrichlyvaluedwhentherealitymightbesomethingelseentirely.

AtthetimeofwritingLibertyMediaconsistsoffollowingassets(figuresfromQ1/2015):

SiriusXM(SIRI)57.8%ownershipLiveNationEntertainment(LYV)~27%ownership



100%ofAtlantaBraves,Forbesthinkstheyareworthover$1bn,buttakeitforwhatitsworth.LMCboughtthemfor$400msoImfairlysuretheyareworthatleastthatmuch.+Smallstakesinvariousthings,seethefullassetlisthereInaddition,LibertyMediashouldbegettingaround~$1bnfromtheirlawsuitagainstVivendi.Vivendihasappealedsoitstakingmoretime,eventhoughthelegalbattlehasalreadylastedoveradecade.Latestnewsisthattheyexpecttogetthecashsometimenextyear.

SiriusXMGoinglongLMCmeansgoinglongSIRI,soitswisetohavesomeideahowitis.BecauseIdontwanttomakethispostmoremassivethanitalreadyis,ImgoingtocoverwhatIthinkarethemostimportantpointsaboutSIRI:

1. Marketcapat$3.73/shareis~$20.5bnmarketcap2. Targeting4xEBITDAleverage(Malonehassaiditsgrowingsofast

itshardtokeepappropriatelylevered)3. TheyarebuyingbackmassiveamountsofshareswithFCF+debt4. FreecashflowforQ1/2015was$276m,up24%.Whatsmore

amazingisthatpershareFCFwasup36%.IbelieveFCFestimatefor2015is$1.25bnwhichwouldput2015FCFyieldto6%

Longstoryshort,ifSIRIcankeepgrowingatsimilarrates,itsundervalued.

FewreasonswhyMalonelikesit:

Ithasscalableplatformduetofixedcosts.WitheachincrementalsubscribertheirmarginsgrowandFCFgrowsfasterthantopline.Subscribermodelbringsstabilityandenablesuseofhigherleverage,enhancingreturnsGoodgrowthprospects:Usedcarmarket,goodrelationshipswithOEMs(seeforexampleNissanconnectrollingouton2016)Thebestoperatingmodelintheindustry,drivenbyexclusivecontent



Unique,monopolylikesatelliteandspectrumassetsandthusthemodelishard/impossibleforcompetitorstoreplicate.ItssomucheasierforSiriustoreplicatethecompetitorsmodelsthanviceversa.ArtistsandcontentproducerswanttogetpaidandSiriusmakesthatpossiblebyactuallymakingsufficientamountofmoneytopaythem.OEMrelationshipsIfIremembercorrectly,SIRIisinstalledin70%ofnewcars.

ThoughtsonrisksIthinkstreamingservicesofferingfreestreaming(Spotify,Pandora)wouldhavetodosomethingdifferenttodisruptSiriusXMsoIdontseethoseasthreats.Theyalsocantproduce(asmuch)exclusivecontentbecauseoftheinferiorityoftheiroperatingmodel.

IneverwanttounderestimateApplesoIthinktheymightbeabletoleveragetheirexistingecosystemtocreateameaningfulcompetitor(Applemusic),especiallyiftheycangetgoodexclusivecontent.IthinkthisiscurrentlythebiggestthreattoSIRI,butwellsee.IbelieveSiriushasaclearleadhereanditsgoingtobetoughforAppletodisruptthem.

TheproblemwithApplemusicmostlyisthatasfarasIunderstand,itsnotadirectcompetitortoSiriusincarrealestate..notyetatleast.Ibelieveyoucantstreammusicasefficientlyviainternetduetowireless/cellularlimitations?Thismightchangeinthefuturethoughonce/ifwirelessinfrastructuregrows.

ThebiggestthreattoSIRIwouldbeaservicethathassimilareaseofuseandexclusivecontentwheretheserviceprovidercanpaythecontentproducersaswellasSIRIdoes.Infact,theydhavetodosomethingconsiderablybetterbecauseSiriusisalreadysodeeplyingrainedtotheirtargetmarket.

LawsuitsThereareongoinglawsuitsoversomepre1972songsthattheyveplayed.IdontknowwhethertheycanbemateriallastthatIheardtheycouldpaysomethinglike$200m,whichwouldntbetoobad.Ofcoursethisdoesnt



meanthatthepossiblesettlementwontbehigher,butthisisoneofthosethingsthatshouldbeconsideredwheninvestinginthis.

Another,morerecentarticleonthis.

SIRItaxfreedividendstoLMC?SIRIisbuyingstockbacksuperaggressively,wecanestimatethatitwouldtake23yearsforSIRI(debtassisted)buybackstopushLMCownershipabove80%.

Afterowning80%ofSIRI,dividendswillbetaxfreeanditwouldgiveMaffei/Malonecombodirectaccesstocash.IftheNAVdiscountpersiststheyllprobablyjustbuybacksstockwhichwouldbemoreefficientthanSIRIbuyingitsstock.

OnepartthatIlikemoreaboutLMCincontrasttoowningtheirholdingsstraightisthatyouvegotthesmartestpeopleonthebusinessoverseeingwhatyouown.IvelistenedandreadabouttheseguyssothatIknowthattheylldotherightthingandIdontnecessarilyhavetowonderwhetherIshouldsellornot.

ResourcesforSIRIPunchcardsblogpostonSiriusXMSIRIcalltranscriptsonSeekingalphaTherewasrecentlyaSApostonSiriusXMCanada,whichisworthlookinginto

LiveNationEntertainment(LYV)LiveNationEntertainmentisthebiggestplayerinlivemusicindustry.Itlikelyhasawidemoatbecauseoftheflywheelfromcontrollingeveryaspectoftheprocess:theysellthetickets,bookthevenues,paytheartists,collecttherevenuesfromadvertisingandareintheprocessofmonetizingtheliveconcertsviapartnerships.



Ibelievetheydonthaveanymeaningfulcompetitors,sotheykeepongrowinganditshardifnotimpossibletobuildscale(costeffectively)becausetheindustryissostronglycontrolledbyLYV.

LYVisgrowingitsownersearningsatnicerate.ItwillbenicetoseewhatLMCplanstodowiththeirstake:forexampletherewillprobablybesomesynergiesbetweenSIRIandLYV.MalonehasreportedlybeenintalkswithVivendiwithUniversalinmindsotheyaretryingtofindpiecestocomplementtheirexistingmusiccenteredecosystem.

Forfurtherinformation+valuation,IreferyoutoLiveNationEntertainmentAnUnregulatedMonopoly?

OtherresourcesVICwriteupsfrom2011and2013

VivendilawsuitLibertytooksomestockaspaymentfromVivendiforsomeassetsinearly2000s,butVivendifailedtodisclosethattheywereinthemidstofaliquiditycrisis.

AtthetrialVivendisdefencewasthatLibertywastoostupidtodoadequatejobofdiligencesotheydeservedtogetdefrauded.

Whoknows..Itmightwork!MaloneonVivendisdefence

ThelatestnewsonthiswasheardintheQ4/2014quartercall:

SohopefullywewillhavethisresolvedprobablybyearlynextyearatleastinfrontoftheSecondCircuit.

SoifIunderstoodcorrectly,wecouldexpectforcashsometime(early?)next



year.

RoughsumofpartsImtotallynotgoingtogothrougheverylittlepiecewhattheyownsoImgoingtousefiguresprovidedbythispresentation.ThefiguresaredatedatApril1stsotheyarefairlyrecent:

HeresmyquickspreadsheetwhereIusetheirpublicassetsvalue(April1st),tookVivendijudgementintoaccountandupdatedSIRIsvalue:



BythetimeImeditingthis(andbythetimeyouarereadingthis),thisisunfortunatelyalreadyoldnews.Itdoeshowevergivesomesensehowitlooks.

Soincluding$1bnVivendijudgement,theroughNAVdiscountduringthattimewas>20%.

TakeintoconsiderationthatwithLMCtheresacorporatelayerwhichprobablyshouldbecapitalizedandthusthestockshouldbeexpectedtotradeunderNAVinthefutureaswell.IdontthinkthoughthattheNAVdiscountshouldbeashighasitcurrentlyis.

IdounderstandthoughthatthemarketdoesntgiveanyvaluetotheVivendijudgementsimplybecauseitssoeasytoforget.Inadditiontothatitsuncertainwhen/iftheresgoingtobeapayment.

LibertyBroadband(LBRDA/LBRDB/LBRDK)

Highspeedinternetisverysticky.Peopleloveit.Ithinktheywouldgiveupfoodbeforetheywouldgiveuptheinternet.

LibertyBroadbandisbasicallyaholdingcompanythatowns>25%ofCharterpreTWCdeal.

BeforetheTWCdeal,thisiswhattheyown:

Charter28.84mshares,valueat$171.80/shareis~$4.95bnTWC2.36mshares,valueat$180/shareis~$423m(Thesewillallbeconvertedtonewchartershares)Truepositionseebelow$700mincashwhichis/willbeinvestedinnewCHTR$300mdebttoLibertyMediaTheyalsohadTWCcalloptionswritten,whichaccordingtoQ1filingswerefairlyvaluedat$71.5m.Idontknow/understandhowtheseworkwiththeTWCmergersoImgoingtotreatthemwiththeirfairvalue.



Truepositiondevelopsandmarketstechnologyforlocatingphonesanddevicesonthecellularnetwork.IpersonallyhavenoideawhatTruepositionisworthitsAdjustedOIBDAfor2014wasnegative$3m.GlennChanhadanexcellentpostonit,butImnotassigningitanyvaluejusttobesafe.

IthinkitspossiblethatTruepositionsvalueisntinitoperations,butinthefactthatitsanoperatingbusiness.Section355exchange,aformoftaxfreedistributiontoshareholders,apparentlyrequirestheretobeanoperatingbusiness.SounlessImmistaken,theywouldnthavebeenabletospinLBRDtaxfreeoutofLMCwithoutTrueposition.

Roughsumofparts

ThistooisalreadyoldnewsbecausethepricessurgedreallyfastafterIhaddone/writtenthese,whichisreallyirritating.

CornerofBerkshireandFairfaxLBRDA

Charter&TWCdealTounderstandLBRD,youhavetounderstandCharter,whichisbuyingout



bothTWCandBrightHouseNetworksintherecentlyannounceddeal.

Togetthedealdone,LVNTAand3rdpartyinvestorssuchasSorobanandJanapartners(whoalsohappenstobeonthesmartinvestorslist)investinLBRDKstockat$56.23/shareandproceedswillbeusedinvestinginthenewCharter.Thislooksfairforexistingshareholdersasyoucaninvestinthesamesharescurrentlyatlowerprice.

ThisdealhasbeenwrittenkindaextensivelybyseveralwritersandIthinkIveseenatleastfewspreadsheetsregardingthedeal,itsverygoodideatoproduceyourownbecause1.youlearnsomethingintheprocess2.youdevelopmoreconvictiontotheideabecauseyouunderstanditbetter.

Charterisvaluedat10.5xEV/EBITDATWCwillbeboughtat$55.62bn/$22.69debt>$78.31bnEVandabout$8bnEBITDA.EV/EBITDAis9.8x.Adjustedforsynergies,EV/EBITDAforTWCiscalculatedat8.3x

EvenwithoutsynergiesthedealisaccretiveforCharter.ThebestpartofthisdealisthatTWCassetsaremismanagedandtheyarebroughtunderTomRutledge,whowillimprovetheoperations.

Greatpostsonthedeal:

ValueVenturepost17MilepostSATrevorChangpost

AndheresmyattemptinvaluingproformaCharter:



Revenuegrowthisagiven,butwhythemarginexpansion?

1. Fixedcosts2. Broadbandcustomersarehighermarginthanvideocustomersandare

growingfasterthanvideocustomersaredeclining(Rutledgealsohashistoryofdramaticallyreducingvideochurn)

Asfortaxes,IrememberreadingthattheNewCharteriseffectivelyshelteredfromtaxesuntil2019duetoNOLs,steppingupacquiredassets,capexetc.

Ivelaidouttwocases,9xEV/EBITDAvaluationand10xEV/EBITDA.Ifshare



pricegoeslower,buybackswillbemoreaccretive,soIthinkitsnotthatbigofadealinthelongterm.

Ithinkthatthemostlikelyoutcomeissomewherebetween13.518%CAGRinthemediumterm.Inthelongtermwellprobablyseelowmidteensreturns,dependingonwhetherMalonesrightwithcableorwhethersomethingelsehappens.

WhatIloveaboutcableisthatitsaplayintooneofthemegatrendsthatIseebeinghugeinthefuture.

Alsonoticethatmymarginandgrowthassumptionsareabitlowerthansomepeoples,sotheremightbesomeupsidetothesescenariosifRutledgemanagestopullmarginsover40%andgrowthhigherthanmiddigitsp.a.

Therealitywillalwaysbedifferentfrommodels,forexamplebecauseRutledgewillbeinvestingmoreforthelongterm,soFCF/earningswilllikelybelowerandthustheremightbelessbuybacks.Inanycase,IbelievethatMalonedidntbullshituswhenhesaidduringLiberty2015AGMthathethoughtthedealwillhavehighteensIRR.

Inadditiontoallthese,theremightbesomeadditionalupsideifcapexwillbelowerinthefuture.MymodelassumesthatthecapexwillstaythesameinrelationtoproformaEBITDA/EBITDAcapexratio.

TomRutledgeIfyouvefollowedCharterforawhile,youveprobablyheardthatRutledgeisconsideredthebestoperatorinthebusiness.Butwhy?

BeforeMalonerecruitedRutledgetoCharter,hewastheCOOofCablevision.Duringhistenurethere,Cablevisionachievedthebestoperatingmetricsintheindustry.Hesworkedincableindustryformostofhislifeandherosetohiscurrentpositionfrominstallingequipmenttocustomerhomes.

WhenhejoinedCharter,herecruitedmostofhisteamfromCablevision.

MaloneisveryimpressedwithRutledgeandwhathedidwithCHTR,for



example:

1. Simplifyingtheservicewithonepackage>thishelpscustomernottocallthemmuchsothattheydontneedmuchpeopleatcustomerservicing,whichinturndriveshighermargins

2. Goingalldigitalwheretheycanoffer50mbminimumserviceatreasonablepriceandwiththebenefitthatwhendataconsumptionisincreasing,theyhavenoproblemwiththecapacity.

3. Withfixedtelephonehesaidthattheyaregoingtopriceitsothatpeoplecantsayno.

Ithinkresultsspeakforthemselves.Rutledgehasbeentheonlycableguygrowingsystematicallyinhighsingledigits.

Miscellaneous,interestingnotesonCHTR/TWC

ManyinvestorsbelievethatallhouseholdsintheU.S.havehighspeedinternet.Infact,50%ofU.S.householdsusecableorfiberinternet,20%ofU.S.householdsuseDSLinternet,and30%ofU.S.householdsdonothavebroadbandinternet.Asrecentlyas2012,U.S.cablecompaniessuchasComcast,TimeWarnerCable,andCharterallhadmorevideosubscribersthaninternetsubscribers.

Inotherwords,broadbandinternetisahugeopportunityinthefuture,especiallyasdataspeed/capacitydemandgrows.

Someotherpointstobenoted:

TWCisyettoconvertalldigital.Theyhavealreadystartedthisprocessandonceitscompleted,itwillbeadrivertoenhancetheperformanceofthecombinedcompany.Malonethinksthatitwilltake3yearstocompletethisprocessatTWC/BHN,butitwillbeworthit.Thedealwilllikelygothroughfasterthanpeoplethinkbecausethethreecompanieshavealreadybeenexaminedbythe



regulatoryentitiessotheprocessshouldbemorestraightforward.Internetconnectivityisveryhighmargin,whichwilldrivemarginexpansioninthefutureforcablecompanies.BrightHousealreadyhasawirelessservicewitharound45khotspotsinFlorida,couldaccelerateChartersexpansionefforts.TWChasatechnologycalledHotspot2.0,whichenablesbroadbandcustomerstohaveaseamlessexperiencewiththeiraccesspoints.OverlapwithFiOSisminimalwithbothCharterandTWCunder4%withFiOS(VZ)acrossgeographicfootprintvs.CVC/CMCSA/TWCat45%/15%/12%Itmighttake~3yearsforthebiggestresultstostarttoshowup.ThereasonforthisisthatRutledgeplanstounifythecombinedcompanysproductofferingsetc.+upgradetheanalogsystemsduringthetime.ThismightnotbepossibletodowithoutstrongcontrolfromLibertybecauseitrequiresalongtermview.FromwhatIvereadandunderstood,thesettopboxesthatCHTRisdeploying(Worldbox),ismilesaheadofcompetitors.Forexample,itsbackwardscompatible,cloudbased,theycanhavemultiplesuppliersbecauseoftheirownsecuritytechnologyuseddrivinglowercostsetc.

CablescompetitiveadvantageCablehasanadvantagewithbroadbandagainstDSLbasedincumbentprovidersbecausecablerequiresconsiderablylessincrementalcapitaltoincreasespeedsontheirservice.

ThisadvantagehastobeusedasfastaspossibletoensurelastingcompetitivepositionandthisiswhyChartersRutledgehasbeeninvestingforthefuture,sacrificingfreecashflowintheshortterm.

Anotherthingthatsafactoristhatthetelcoshavecommittedtoahighdividendpolicy,whichrestrictstheirabilitytoinvestininfrastructureaswell.



Itcostsabout$3,400tomakeaneworupgradedconnectiontoasingleaveragesuburbancustomer,includinginfrastructure,lineextensionsandhomeinstallation.Sincetheaveragemarginperhouseholdis$50to$100permonth,thepaybackcaneasilytakemorethansixyears.

(sourceforabovequote)

Mobile/wifiopportunity

Datademandonwirelessnetworksaregoingtocreateascarcitysituationincreasingly,wheremoreandmoreofdatawillhavetobedownloadedthroughterrestialnetworks.

Maloneisvisioningthatcableisgoingtocreateanationwidewifinetwork,wheredevicesaregoingtoworkseamlesslywhethertheyareathomeorelsewhere.

Ultimatelythesenetworkswillhavetoworktogethereithercooperativelyorthroughconsolidation.

Hementionedthatwificostperbithasthepotentialtobecheaperthanthecellularspectrumcost.ThisisinterestingbecauseMarkMasseymentionedinhisinterviewthatLibertyGlobalisintheprocessofmakingits15m+customermodemsintoWIFIhotspotsthatcanbeaccessedbyallcustomers,creatingawifinetworkforthebenefitofthecustomers.(IthinkIvereadthoughthattheHorizonwifirangeiskindashitty)

Myguessis,thegovernmentwouldbegreatlypleasediftherewasathirdmeaningfulalternativetothetwodominantwirelesscompanies.

OnethingthatpeoplehavemissedwiththeTWC,isthatduetohistoricalquirk,theyhaveaperpetualrighttobeingaMVNO(MobileVirtualNetwork



Operator).Charterdidnthavetheserights,butthroughtheTWCdealtheydobyextension.

Thebestthingaboutthisisthatbecausethecostsarelargelyfixed,thiswillbebothagrowthandmarginexpansionopportunity.Italsohasthepotentialtocreatealotofvalueforthecustomerwithpossiblequadplayswhereallcommunicationsishandledthroughthecablecompany,creatingevenmorestickiercustomerrelationships.

VODMalonetalkedalsointheAGMaboutvideoondemand(VOD)andhowthecablecompaniesfailedtocapitalizeonthat,whichultimatelyledtotheemergenceofNetflixandHulu.

Hestillbelievesthatbyleveragingtheirexistingdistributionsystem,itstillcouldbeanopportunity.

TheultimategoalFromwhatIvegathered,makingtheconsumerstickyandsecuringtheleadershippositionwithnewproductsandofferingbetterservicethantelcosisMalonesultimategoalwithcable.

Hewantscabletobetheonestopforcommunicationsbybundlingallofittogether:bestbroadbandspeedatthebestprice,cheapwififorseamlessexperienceinandoutofhome,mobileplayasMVNOandmaybemakingacompetitiveVODproducttocompetewithNFLXandHulu.(+somethingIforget)

Theinfrastructureofcableofferssomanypossibilitiesinthedataheavyworldoftomorrowanditcurrentlyhasaleadwhichmustbetakenadvantageofbeforecompetitorscatchup.

LetshavealookatMalonesinternationalcableoperations:

LibertyGlobal(LBTYA/LBTYB/LBTYK)



LibertyGlobalconsistsmostlyofoperationsinEurope,wheretheyarealreadypastthebiggestconsolidationphase.

Itskindabigatover$42bnmarketcap@$47.9/share,~881.79mshares.

AsforthevaluationIthinkitsaround10xEV/EBITDA,with5xEBITDAleverage.

Again,Imnotgoingtogoindetailherebecausetheressimplynotmuchtosay:alotofwhatshappeningwithCharterisapplicabletoLibertyGlobal,thoughIthinkRutledgeisbetterCEOthanFries.

Ibelievethattheyaremostlydonewithbigdeals(likeFrieshassaid),butIdneverruleoutthechanceforthemtodoamegadealifagoodopportunitypresentsitself.MaybeMalonewillfigurehowtogetthebananaoutofthejar(inotherwords,doadealwithVodafone)

HimtalkingaboutVodafone:

Theprincipalbarriertous,andImtalkingphilosophicallyhereImnotmakinganoffertoanybodyphilosophically,youhaveadifferentviewofhowalargecompanyshouldcapitalizeitself,Malonesaid.Theirphilosophyislowleverage,lowriskandhighcashpayouttotheirshareholders.Iprefertogrowequityvalue.

FromMalonespointofview,Vodafoneisruninefficiently.Theresalotofvaluetobecreatedbecausepeoplehaventfiguredouthowtorunthecablesystemsaswellashedoes.

Sowhatsnext?Cableconsolidation,accordingtoFriesisprettymuchdoneinEurope,sothenextlogicalthingafterhorizontalexpansionisverticalintegrationandfocusingonpenetrations(whicharerelativelylow)andoperationalprowess.IbelieveLibertyGlobalwillbeparticipatingincreasinglymoreinthecontentsideandtheyvealreadydonesomeJVdealswithDiscovery.



[edit]Also,seecablepenetrationcomparisontablefurtherdowntoseetheLBTYAspotentialintermsofincreasedpenetrationrates.

Horizonsettopboxproblems?TherehasbeensomeconcernsthatLibertyGlobalsnewHorizonboxsucks.ThereareseveralthreadsthatcanbefoundonGooglewherepeoplearecomplainingaboutit.

Evenasrecentlyas7monthsago,therewasaredditthreadwherepeoplejustslammeditdownandIcantotallyunderstandthat:nothingmakesmemoremadthanusingsomethingregularlythathasashittyuserinterface.

ThesilverliningherecouldbethatLGIcanupdatetheboxesremotelyandapparentlytheyvemanagedtofixsomeproblems,butIfinditweirdhowtheyrolledoutaboxEuropewidewhichpeopleconsideradisasteruserinterfacewise.

ThismightnotbematerialtoLGIespeciallyiftheymanagetofixthebiggestshortcomingsbutIdohopethattheygettheirshittogetherwithit.

IdidfindthislittlepiecewhichtalksabouttheirnewboxwhichislaunchinginNetherlandsinconnectionwithZiggoacquisition:LibertyGlobalhadgottenalotofcomplaintsabouttheoldboxsotheyapparentlymanagedtoaddressthecompaintsandupgradedit.Thisissomewhatencouraging.

LibertyGlobalLatinAmericaandCaribbean(LILA/LILAB/LILAK)AboutaweekagoLibertyGlobalcreatedatrackingstockfortheirLatinAmericaandCaribbeanoperations(LiLAC).

Forstarters,checkouttheLiLACpresentation.

LILAKownsfollowingassets:

VTR,ThebiggestcablesysteminChile60%ofLCPR,LibertyCablevisionPuertoRicoajointventurewith



Cablevision,wheretheyessentiallyhaveamonopolyif/whentheChoiceacquisitioncompletes

LILAKlikelyhasthelongestrunwayintheempire.TensofmillionsofpeopletherearestilladoptingthemodernlifestylesothereshugepotentialforMalone/FriesimplementtheplaybooktherewithmassiveM&A+organicgrowth.

EvenifLiLACforwhateverreasonwouldbecomedistressed,itsstilllegallypartofLibertyGlobalsotheysharethebalancesheet.Idontknowhowthematterwouldbesolvedfromtheperspectiveoftheshareholders,butultimatelyIthinkprovidessomemarginofsafetytotheinvestment.

DespitetheeconomicproblemsinPuertoRico,thecablerevenueshavebeengrowingmostlybecauseoffavorabledemographics:MyimpressionisthatPuertoRicoisstilladevelopingplacewherepeoplearestilladoptingtolifestylefilledwithTV,computersandespeciallytheinternet.Thisshoulddrivehighsingledigitgrowthintheregionforthecablesystemthere.

LiLACmightexperiencesomeproblemswiththeeconomiesofLatinAmerica,butIbelieveonehastothinklongtermaboutthis.IthinkIvereadthattheyhedgesomeoftheircurrencyexposure.

HeresmyattemptinvaluingLILAK:



TakeintoconsiderationthatearningsinthiscaserepresentsnormalizedFCFwithnormalizedmaintenancecapex.IthinkthatLILAKwillhavehighercapexduetonewbuildopportunitiesandthuslessbuybacks.



Herearethepopulationpyramids,whichgivesomesenseofthepotentialofthedemographics.

ComparisonofcablepenetrationIbelieveoneofthekeysofjudgingcablecompaniesistheirpenetrationrate:



Fewnotes:

LiLACpenetrationlookmature,butmostgrowthcomesfromfavorabledemographicsbecausemostpeopledontevenownacomputeryetLibertyGlobalhasagreatopportunitywithInternetpenetration,thoughImnotsurewiththeindividualcountrieshowthemarketsarethere.LGIhasgoodinteractiveserviceabouttheiroperationsintheirwebversionof2014AnnualReport.

AtfirstsightyoumightnoticethattheProFormaCharterspenetrationratesarehighlysimilartoComcasts.Itrepresentshowintrinsicallydependentthe



futureperformanceofthecompanyisofRutledge.

Bonus:CWCArticle:MalonetotakestakeinCWC

CWCisaUKbasedcableandwirelesscompanyoperatingintheLatinAmerica.TheyrecentlyacquiredColumbusandapparentlythetransactionmadeMaloneamajorshareholderinthecompany.

CWCappointedThadYorktotheirboardofdirectors,whoisthemanagerofMalonespersonalbusinessentities.

ThadheldseniorpositionsatTelecommunicationsInc.(TCI)andTCIInternationalthatrangedfromoperationstofinanceinTCIscableTVbusiness.HestartedinthecabletelevisionbusinessasanInstallerforTCIwhileattendingcollege.

TheressomespeculationthatCWCatsomepointcouldbefoldedintoLILAKandthusMalonecouldendupowningbiggerpercentageofitthannow.

ThisbegsaquestionwhetheryoushouldinvestinCWCtoanticipatethisdeal?Illhavetoworkonthismyself,butheresthequicknumbersonCWC:

EBITDA$585mLTMMarketcap4.368B*69p=3bnGBPor$4.7bnUSDCurrentleverage3.6xEBITDA(target2.53,whichislow,butwillbelikelyuppedifMalonegetscontrol?)Q1netdebt$2366mEV/EBITDA=$7066/$585>12x

With12xEV/EBITDAitlooklikealotofthepotentialisalreadypricedinwhileLILAKistradingunder10x.CurrentlyitseemsthatonvaluationbasistherewouldbemorevalueinLILAK,butoneshouldntunderestimatethefactthatMaloneownsmoreCWCthanLILAK.



ImprettysurethattherewillbeadealatsomepointandMalonewillownmoreLILAK.

Iftheresoneconclusionthatoneshouldhavehere,itsthatMaloneseesalotofpotentialincableinLatinAmerica.

LibertyInteractiveLibertyInteractiveconsistsoftwotrackingstocks:

1. LibertyVentures(LVNTA/LVNTB)2. QVC(QVCA/QVCB)

TherationaleforthesebeingunderthesameumbrellaislikelybecauseQVCisprofitableandVentureshassomeinvestmentsanddebtwithfavorabletaxattributessoLVNTAcansheltersomeofQVCstaxes.

Quicklookatboth:

LibertyVentures(LVNTA/LVNTB)Thisoneseffectivelyapublichedgefund



LVNTAconsistsofnumerousequitystakes,whollyoralmostwhollyowneddigitalcommercebusinessesandsomederivativesthenoisystuff.

Thekindofstuffyounormallywouldnttakepublicasitstoocomplicatedandanalystsdontwanttomesswithit

Fewnotes:

1. TheirinvestmentsphilosophyisthekindthatIvegrowntolikealotlately:SeekhighROICbusinesseswithreinvestmentopportunities



atattractivevaluations.2. Someinvestmentsaretaxdriven(forexample,Greenenergy),

meaningthatwithouttheirfavorabletaxattributestheywouldntbethere.

Thelatestpresentationhadshortdiscussionabouttheircurrentinvestmentsandwhattheyareattemptingtodisrupt.IhighlightedtheonesthatbelongtoLVNTAcurrently:

Theirlatestdealistobuy$2.4bnworthofLBRDKatNAV($56.23)andtheir



existingTWCstakegetsswappedwithLBRDforequity.ThiskindofreinforceshowattractiveMalonethinksLBRD/newCharteris,thoughIalsothinkthisarrangementwasneededtogetthedealdoneandtoavoidinvestmentcompanyactwhichwoulddemolishthesupervotingsharestructure.

WhatsinterestingaboutVenturesisthattheyaregettingannualcashflowfromQVCbecausetheyshieldsomeofQVCstaxes,thoughcumulativedeferredtaxliabilitygrowsaswell:

Heresmyunderstandingofthewholearrangement:Becauseofthefavorabletaxtreatmentfrombondstheygettoinvestthecashfromtaxshield



beforehandbeforetheyhavetopaytheliabilitiesbackinfull($5.1bn)in20292031or1416yearsfromnow.

Theyllhavetopaytotalof$5.1bnstartingfrom2029.Beforethistheycaninvestthecashthattheyaregoingtogetbeforehandfromtheirarrangementssoyoullhavetodiscounttheirperformanceuntiltheyhavetopaythetaxliabilitiesback.

Inotherwords,LVNTAiskindofaleveredinvestmentvehicleplay.

SounlessImwrong,theyllhavetopay$7.2bnin20292031andsotodeterminehowmuchLVNTAisworth,youllhavetoestimatehowmuchtheyllbeabletogrowtheircurrentinvestments+taxcashflowtheyaregoingtogetinthemeantime.

HeresasnippetfromthespreadsheetthatImade:



Imalmost100%surethatIvemadeamistakealongthelinebecauseLVNTAissocomplicated,butitssomething.NoticethattheirleveredstructureresultstoCAGRperformancebeinghigherthantheirgrowthininvestments.

1. Ivaluedtheirecommercebusinessesat$1bn2. Iassignedvalueof0togreenenergyforsafety3. Myhopefullyconservativevaluationfortheirinvestments+businesses

is~$8.5bn4. ItookthecashflowtheygetfromshieldingQVCtaxintoconsideration.5. TakingintoconsiderationMalone&Maffeicombotrackrecord,Ithink

10%growthexpectationininvestmentsmightbetooconservativeand



thatswhyIputfewdifferentscenariosthere.6. InoticedthatyoucanvaluethisroughlybytakingtheestimatedROIof

LVNTAandadding2%togettheCAGRbecauseofleverage

IfyoulikeExpedia,theirotherinvestmentsandLBRDKatNAV,thiscouldagoodwaytobuyintoit.

Also,takeintoaccountthattheycurrentlyhave~$700mworthofdeferredtaxliabilitiesfromtheirequities,butIwouldntbetooworriedaboutthempayingtaxesunlessnecessary.

Oneoptionthattheyhave,whichtheyalsodidwithTripadvisoristospinofftheholdingsviaReverseMorrisTrust(anotherarticleoninvestopedia)andmonetizethemthatwaytaxfree.

Somerisks:Inadditiontonotinvestingtheircashwellenough,thebondsthataredue2029areexchangeable.Iftheyarecalledunexpectedly(likeifoneofthebondholdersgetstakenoutinM&Aevent),LVNTAhastopaybeforehandfortheliabilities.Thegoodthingisthatthebondholdersareincentivizedtoholduntilmaturity.

Oneoftheproblemsisthatitcanbehardforthemtofindattractiveinvestmentsgoingforward,especiallyifthecurrentbullruncontinues.TheydohavetheoptiontobuybackLVNTAshares,grantedtheyarepricedfairly.

ScenariosformonetizationThisfairlyrecentSumzerowriteuponLVNTAwaswrittenbyapersonwhoseemssmart/knowledgeableandcamewithscenarioswhereLVNTAcouldmonetizetheirassets.Ifyouareinterested,Ihighlyrecommendyoutoreadit.

Malonesellseverythingbutthis?Imightbelookingabittoomuchintoit,butrememberwhenIwroteaboutMalonesinsidertradingwherehessellingbunchofstuffregularly?Well,if



youcheck,youmightnoticethatforsomereasonhehasntsold/isntsellinganyLVNTA.TheredoesntexistnonvotingsharessothatmightbeonepartofitthoughIdontknow.

NowthatIvegotabitbetterunderstandingofLVNTA,Igetwhysomeonewouldwanttoownthis.Improbablygoingtoinitiateasmallposition,keepfollowingitandtrytounderstanditevenbetter.

QVCGroup(QVCA/QVCB)Forme,QVCisoneoftheleastinterestingpiecesoftheempire.ItconsistsofQVC,aTV/onlinemultichannelretailerandastakeinHSN.

BecauseImnotveryinterestedinit,IllcoverwhatIcancomeupfornowandreferyoutoabetterandmorecomprehensivewriteup:

Slowgrowthletsfaceit,retailingisreallyhardandcompetitive.QVCiswellmanagedandithasgoodprofitability(despite)beingaretailer.AssetlightdriveshighFCFwithverylittlecapitalexpendituresmostofthecashflowgoestoaggressivebuybacks.3xadj.OIBDAleverageContentdrivenforexample,theyareproducing2.5mminutesofhighqualityvideosyearly.Developingonlineshoppingexperienceaggressively,whichisIIRCatleast>50%oftheirsales.Mostoftheirproductsareexclusive,whichcreatesadditionalvaluetocustomersandalsomitigatesAmazonthreat.Customersaresomewhatloyalasmostofthesalesarerepeatpurchases.

MyconclusionisthatQVCisagoodbusiness,butnotasgreatasIconsiderotherspartsofMalonesempiretobe.Asexpecteditswellmanaged,thoughifitwasntitprobablywouldntbethereasitwouldhavebeenswapped/sold



out.

Thebest(andtheonly)writeupthatIvereadonQVCisbyValueVenturesfrom2013.Highlyrecommendedifyouareinterested.

Discovery(DISCA/DISCB/DISCK)IveactuallywrittenaboutDiscoveryafewmonthsback,butIwouldntrecommendthatposttoanyone.BackthenIunderstoodalotlessaboutthecompanyandtheindustryandIstillfeellikeIdontunderstandeitherofthemwell.

MyimpressionisthatDiscoverysCEOZaslavisprettygoodoperatorandtheyvebuiltscalefairlywell,butyoucanonlydosomuchwithassetsthatlookrelativelymatureatleastintheUS.

InternationalrevenuesarebeexpectedtogrowbothorganicallyandduetoM&Ainthelongterm,butitshardtosayhowmuch.

Scaleisimportant.Yougetmorenegotiationpoweroverdistributorsdependingonhowmuchcontentyouprovide.Inadditiontothat,contentproductioncostsarelargelyfixedsothebusinessenjoyseconomiesofscale.Malonehashintedthattherecouldbeaoncomingcontentconsolidation.

Thebusinessisassetlightmostoftheircostsarerelatedtoproducingcontentandothercostsaremostlyfixed.Thismeansthatthebusinessgeneratesalotoffreecashflow,whichhashistoricallybeenusedtoshrinktheequity.

DISCmakesabout45%ofmoneyfromdistributionandrestfromadvertisingandother,sodistributionissignificantpartoftheirbusiness.Theycandemandmoremoneyfromcableoperatorswhentheybundlealotofchannelstogether(scale)andthesecostshavehistoricallybeenforwardedtocustomers.

IbelieveinthefutureDiscoverysbusinessmightbeunderpressurebecauseinternetcantnecessarilybecontrolledandmonetizedaswellcurrentdistributionsystemsthroughCable.WhenIlookathowpeopleofpeoplein



their20susingcontentviainternet(andhowIpersonallyuse),thisissomethingthatIthinkhasfairchanceofhappeninginthelongterm.

Becausebundling,accordingtomyunderstanding,isalargepartofDiscoverysbusinessmodel,thetrendofpayingforwhatyouneed(asopposedtopayingforwholepackage)wouldhurtthebottomline.

Channelpopularityanddemandisprobablyamitigatingelement.Discoveryschannelisinthetop5ofcablechannelsandIbelievesomeoftheirotherchannelsfareprettywell.

AsforthevaluationIdonthavemuchinsightsitspricedatabout~18P/FCF,EV/FCFbeingsomewhathigher.IftheycangrowAOIBDAinthelongterm,debtenhancedbuybackswillshrinkequityfastenhancingreturns.Theonlyproblemwithlongtermgrowthisbeforementionedtrends,whichiswhyIdontfeelbullishonthestock.

Starz(STRZA/STRZB)StarzisanentertainmentbrandownsfewpayTVchannels,distributesmovies,seriesanddoesforhire2Danimations.

Itsfinancialsfromthepast4yearsdontlookgood,atleastcomparedtootherpartsoftheempire.

IfoundthisreallygoodanswerfromMalone(fromsomeinterviewmostlikelyin2013),creditstooriononCoB&F:

Starzcangoeitherway.Itcangetbiggerthroughacquisitionoritcangetmergedintosomebodywhocandriveembetter.MyviewisStarzneedstobepartofsomethingbigger.Theyneedacurrencytogetthere.Andsothisgivesthemastockandacurrency.Ifsomebodywantstocomeandmakeaproposalafteritsspunforwhyitwouldbeagreatcombination,youknow,wellbeallearsatthatpoint.



Inotherwords,Malonewantstosell/swapit.

Asastandaloneitdoesntseemhavemuchpotentialandtheyareapparentlytryingtofindbuyersforthebusiness,butwithoutsuccess.Forthepastyearstheyvestarteddoingoriginalprogramming,whichiftheyhitajackpotwouldprobablyhelpthemalotinfindingabuyer.

Lionsgate(LGF)RecentlyMaloneswappedsomeofhisStarzstakefor3%ofLionsgate.Idontknowwhatheplanstodowithithedidsaythatitslikealearningexperienceforhim:

Imanengineer,whatthehelldoIknowaboutcontent?Tryingtounderstandwheretheseideascomefrom,howtheygetcreatedandproduced.ThedevelopmentofstoriesisreallygoingtobeimportantinthisrandomaccessworldthatReedHastingsisdrivingusinto.

Now,eventhoughMalonestillhasinvestmentsincontent,hedoesntcontrolthemasitcouldpresumablycreateproblemswithregulationduringcableconsolidation(ashesaidinthe2015AGM).IthinkhesalotmoreattractedtocableandLMC.

Thisisntausualinvestmentforhim:makingmoviesisveryexpensiveandthebusinessdoesntenjoywhatMaloneusuallylikesinacompany:moat,customerstickiness,recurringrevenuesetc.

Malonemightbethinkingthatcontentaggregators(likeDiscovery)couldbecomeunderpressureduetorapidexpansionofinternet,whilethosewhodevelop/createthecontent(likeLionsGate)couldkeeponthrivingandperhapsmakemoremoneybecauseoflackofthemiddleman.

Anyways,IthinkthemostplausibleexplanationforthisisthatMalonewantstobenefitfromlikelyoncomingcontentconsolidation(i.e.LGFgetsboughtout)orhethinksthatcontentcreatorsaregoingtoleveragetheinternetheavilyagainstcurrentdistributors.Idontknow.



ItcouldalsobepossiblethathecouldsomehowleveragetherelationshipwithLGFtoextendtohisother,heavilyskewedintodistributionkindofcompanies.

OfcourseImightbemissingsomekindofanglehereandImeagertoseewhatitis(iftheresone).

WhyDidJohnMaloneinvestinLionsGate?

AscentCapital(ASCMA/ASCMB)NowthisisanoddthingandIalmostmisseditcompletely:Malonenevertalksaboutit,hedoesntsitontheboard..buthestillapparentlyowns~4%ofit.

ItsasecuritymonitoringbusinessIglancedatitanditmighthavepotential,butforthemostpartIdontfeelveryinterestedinitbecausetheressomuchmoreinterestingstuffgoingonwiththeothercompanies.

Ithinkhesnotrequiredtoreporthissells,soitspossiblethathesselling.Cantbesurethoughuntiltheresanewproxystatement.

Bonus:GrupoTelevisa(TV)TelevisaGrupoisthebiggestcable/satellite/mediacompanyinMexicoandSpanishspeakingworld.Apartfromitsamazingassetsandseculartrendopportunity,itsinterestingbecauserecentlytwoMaloneslietunenantsjoinedtheirboard:MikeFries(LibertyGlobalCEO)andDavidZaslav(DiscoveryCEO).

TheresafairlyrecentpresentationbyGameCreekCapital,wheretheyestimateTVstargetpricetobebetween$4557/share.WhatIwanttohighlightfromtheirpresentationaretheassetsthatthecompanyisholding:



Herearemyquicknotesfromthepresentation,butIhighlyrecommendyoutocheckitoutyourself.

TVhas38%stakeinUnivision,whichisabouttoIPO.TValsocollects12%royaltiesfromUnivisionsrevenues.Asabonus,theroyaltyratewillincreaseto16%+in2018.Theyhaveexcellent,dominantassets:theircable,satelliteandcontentnetworksare#1measuredbymarketshareinMexico.Contentbusinessisslowgrowth,shouldhavesomerunwayleftSkybusinessisgrowingatlowdoubledigits



CablebusinessisveryhighgrowthandshoulddrivecashflowsstrongerinthefutureCableconsolidationinMexico/LatinAmericaisyettohappenandMikeFriescandefinitelyhelpwiththat.TVtodayremindsofComcastinthelate80s,whichiftrue,couldbeagoodopportunity.TheirassetsmightbeevenbetterasfarasImconcerned.DemographicsofSpanishspeakingworldarealongtermopportunityonlyaround50%ofMexicanspopulationisusinginternet.Verticalintegrationprovidessynergies.Aboutthemanagementteam,Idontreallyknow.TheyhavemanagedtobuildgoodassetsandthecompanyseemstobeingoodshapesoIminclinedtothinkthattheyaregood.TheBODadditionsraisesmyhopesforoptimizingvariousaspectsofthecompany(re:Maloneplaybook).

Ithinkthisimagemakesthedemographicpotentialclear.



Asfortheconcerns,wearetalkingaboutMexico.Imnotfamiliarwithitatall,butmypreconceptionisthatthereiscorruption,canbelackingincorporategovernanceetc.ThegoodthingisthatTVdoeshavealongoperationalhistory,soasfarasIknowthereisntaprecedentformuchshadystuff.

Eventhoughthecompanyhasgreatassets,theyseemtobeundermanaged.Forexample,theyhavereallylowleveragewhichtheyarejustifyingwithfirepower,butforwhatexactly?

Whatthethingisworththen?Imnotsure,butherearetheprimarynumbers:

(FiguresareaccordingtoQ2presentation)

1. Marketcap:$22.5bn($36.25/share)2. Netdebt~$3bn3. EV/EBITDA~11x/2015accordingtomyspreadsheet,including

estimatedUnivisionstake

TherearealotofmovingpartstheGCCanalysisdoeslookcredible,butIdontreallyunderstandpossible(regulatory?)problemswithMexicoandtherecouldalsobesomethingthatImnottakingintoconsideration.

Operational&financialriskwithTVlookslow,butitsdefinitelynotasoptimizedasMalonescompaniesare,whichhindersthegrowth/profitabilityofthebusinessgoingforward.

Ibelievethatunlesstheircapitalallocationskillsimprove,thebusinesslooks~fairlyvalued.

Asaninterestingsidenote,inLibertyMediasAGM,Malonewasaskedaboutit,buthesubtlyignoredit(implyingthathewouldntwantattentiontoit?).Itspossiblethathesimplyforgottoansweritsincehegavesuchalonganswertotheotherquestion,butitwouldbe..Outofcharacter,letscallitthat.

SoTVcouldbesomesortofbonusforthewholeLibertyfamilyanditlooks



likeMalonehashiseyesonittosomedegree.

Coincidentally,LiLACtrackingstockstartedjusttradingandthetimingisinterestingtoputitmildly.LiLACspresumedprimarypurposeistorollupLatinAmerica,whichaccordingtotheLiLACpresentationisripeforconsolidation.

2014Businessdescription(includes2014lettertoshareholders)

Whereisthemostvaluerightnow?Takeintoconsiderationthatthesearemyviewsonwheretherecouldbemostvalueandeventhoughtheydoreflecttheeconomy

#1IbelieveinthelongtermLibertyGlobalLatinAmericaandCaribbean(LiLAC)operations(LILA/LILAK)hasthelongestrunwaywithorganicgrowthandaccretiveM&A.IalsothinkofitaslittlebitmoreriskierthanthemorematureassetsinEurope/US.ThestockdroppednicelysinceitstartedtradingpresumablybecauseindexfundsfocusedonEuropearesellingit.Unfortunatelyatthetimeofwritingitsreboundedsome.#2IfSIRIcankeepgrowinginmediumtermaswellasitcurrentlyis,LibertyMediaCorporation(LMCA/LMCK)canbethesecondbestbet(maybeeventhebest)inthemediumterm.Iviewitashigherrisk,higherrewardsituationcomparedtonewCharter,mostlybecauseImunsureofSiriusmoatandwhethertheresone.#3ThethirdbestopportunityIbelieveisinLibertyBroadband/Charter(LBRDA/LBRDK/CHTR),whereMalonehasbeenputtingmoremoneyindirectlythroughLVNTA.LVNTAcouldbeajokerofsorts:itcouldprovetobemorevaluablethanitscurrentmarketcapwouldwarrant,butIbelievetheresmorerisktoo.ItsreallycomplexwiththetaxarrangementsanditsessentiallyabetonMalone&Maffeisabilitytomakegreatinvestmentsbeforetheirliabilitiesareduein15years.LBTYA/K,despitecurrentlybeingthebiggestcompanyoutoftheempire,stilllookslikeithasnicerunwaywithrollingnewproductsand



relativelylowinternetpenetration.Contentconsolidationcouldbeanopportunity,butIdontunderstandtheindustryanditsprospectswellenoughtomakeaeducatedguessaboutit.Bonus:TVcouldbeagoodlongtermplayasithasunmatchedassetsandseculargrowthopportunity,butunlesstheircapitalallocationimprovesIbelieveitsfairlyvalued.This(asfarasIknow)isntaMaloneholdingsoitskindofaofftopic,butIthinkitmakesforanicebonus.

Somethingstokeepaneyeon:

1. ThetheoryisthatthebestideasgotowhatMaloneownsthemost,inotherwordsLibertyMediaCorporation(LMCA/LMCK).Hemostlikelyalsoprioritizesthosewhichhecontrolsdirectlybysittingaschairman.

2. Iftheresarightsoffering,participateinit.(Usuallytheydoarightsofferingrelatedtospinoffs)

3. Ifhiscompaniesarebuyingalotofsharesback,theymightbeundervalued.Ibelievethattheymightbuysharesbackeventhoughtheyarefairlyvaluediftheydonthaveanythingelsetoinvestin.

4. Keepaneyeonethespinoffsandtrackingstocksthathiscompaniesdo:forexampleLILA/LILAK

SuccessionMaloneisalready74yearsold,sothatsafactorthathastobetakenintoaccountwhenthinkingaboutfuture.Seeinghimintheinterviewsheseemshealthyandlivelythough,sohesgotthatgoingonforhim.

HehasthoughtaboutsuccessionbygivingtwoofhisCEOs,FriesfromLibertyGlobalandZaslavfromDiscoveryanoptiontopurchasehissupervotingclassBsharesineachcompany.

GregMaffei,whosatthehelmofLibertyMedia,LibertyInteractive



(QVC&LVNTA)andChairmanningsomeothercompanieslikeStarz,hasntgottensuchdeal(yet?).IthinkthoughMalonehassaidthathismost/allofhisshareswillgotoatrustandhellprobablygivevotingrightstopeoplehetrusts.

Ibelievetheseguysknowhisplaybook,knowhowtooperate,havecapitalallocationskillsetc.sotheywillkeeponrespectinghislegacy.

IamawareofthefactthattheremightbesomesortofregressiontothemeandependingonhowmuchMaloneparticipatesinthecompanies,butconsideringhowlongrelationshipstheseguyshavehadwithhim,Ithinkthecompanieswillultimatelydofine.

Someresources/interviewsMalone2hourinterviewabouthispastin2001(ifyouvereadCableCowboy,theresnotmuchnewhere)Niceinterviewfrom2010withMaloneaboutcable/mediaindustry2012Maverickslecturemyfavoriteone,Iveprobablywatchedthis56timesCableCowboyMustreadbookifyouareinterestedinhim

Insights,tipsandmiscfromMaloneMostofthesenotesarefromtheMaverick2012lecture:

Ondiligence:

Themostimportantthingaboutthesedealsisplentyoftimefordiligence

Healsomakesagoodpointhowtakingthetimetakesawayfromtheemotion,enthusiasmwhenyouarebuildingthemodelsandexactlywhythedealgoingtowork.



Theresnoeasyanswerondiligence.Youhavetofigureouttheotherguysbusinessasbestasyoucan.Youhavetousethebestprofessionalsyoucanfindinareaswhereyourownexpertiseislacking.

Onacquisitions:

Whenyoubuyacompany,themostimportantthingistheretentionofthepeoplewhocreatedthevaluethatyouarebuyingtokeep.

Thepeopleyouarebuyingoutmusthaveskininthegameatleastuntilgoodpeoplecanbebroughtintolearnthebusiness.

Ontaxesandtaxefficiency:

Malonehasalmostperversepassioninavoidingtaxes.Forexample,attheirheadquartersthetaxgoupisthebiggestonethattheyhaveandinTCIdaystheirinternaltaxteammetmonthlytodetermineoptimaltaxstrategies.

[Government]isyourpartner,butyoudontwantthemtakingtheirshareearly

Thegovernmentisyourpartnerforlife,theyjustdontgettocometoallthemeetings.Thatstheonlyedgeyougot.

Leverageandtaxefficiencygohandinhand

Ifyouboughttheassetwithcashordebt,yougettostepuptheasset

HegaveagoodexampleofSprint,wheretherewasastartupcompanyandanotherprofitablecompany.Becausetheprofitablecompanysprofitswherepartlytaxshelteredbythestartupslosses,theycouldputtheshelteredcash



backintobusiness,whichresultedinaveryefficientcapitalstructure.

IfyoulookatQVCandLVNTAcapitalstructure,whereLVNTAshelterssomeofQVCstaxesandgetspaidforit,youcanseethatitsveryefficient.

IntheMaverickslecturehetalksabouttaxessomeandyougetasensethathesbeengivingtaxavoidance/optimizationALOTofthought.

FinalwordsIntheenditwasahugepleasuretodothispostbecauseMaloneissuchafascinatingcharacter.Ibelievethathesisoneofthebestinvestorsofourtime,whichisinterestingconsideringthelackofvisibilitythathegetsingeneral.

AlmosteveryvalueinvestorstudiesBuffettinsomewayeitherdirectlyorindirectly,butyouseealotlesspeoplestudyingMalone.Thisismostlikelybecausehedoesntwrite/educatelikeBuffettdoes,butthatdoesntmeanthattherearentgreatlessonstobelearned.

Anyways,greatman,greatstory,greatinvestor.Whatmoreistheretosay?Ihopethestorycontinuesaslongaspossible.

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FredDJuly21,2015

Greatpost,superboverview!

BusinessCharterCableSpectrumBusinessPhone&Internet.IncreaseYourBusinessROI&Save!



ReplytoFred

julesJuly21,2015

Thanks

Replytojules

YairJuly21,2015

Thankyouforadetailedpost.

WeallanticipateaninterestratewillrisebytheFED.So,howthoregardthisrise:I.Malonewillfindithardtocuntinuetoleveragehisempire>hiscompeniesstockpriceswillnotoutpreform(comperetomarketaverage)

II.InthelastyearsMalonefulfillhisempirewithenoughcheapmoney,soonlyhiscompetitors(andtherestofthemarketcompenies)willneedtoservehighcostdebt>hiscompeniesstockpriceswilloutpreformcomperetothemarket

ReplytoYair

julesJuly21,2015

Goodpoints,Ibelievethatthebestwaytotrytomeasuretheeffectsofinterestratesistoplayaroundwithratesinaspreadsheetandseehowtheyeffectthecompanies.CantreallysayhowmuchrateshavetoincreaseforMalonescompaniestostarttounderperform.

Replytojules



innerscorecardJuly21,2015

ThiswastheclearestoverviewofMaloneandLibertythatIhaveread.AndIvereadafewoftheotherones(someofwhichyouhavealludedto).

Lookingforwardtoanyupdates/edits.

Replytoinnerscorecard

julesJuly21,2015

Thanks

Replytojules

HiramPatelJuly21,2015

Thisisafabulouspost.IvebeenmeaningtodooneofthesetokeepmyowninvestmentsinMaloneentitiesorganized.

DoyouthinkLibertyGlobalisfullyorovervalued?

ReplytoHiram

julesJuly21,2015

Ithinkitmightbefairlyvaluedorslightlyundervalued.Ibelievetheyvegotdecentrunwaywithimprovingpenetrations+quadplays+wifiopportunitiesetc.

OtherpartsoftheempirelookmoreinterestingrightnowsoImpersonallynotinvestinginLBTYKattheselevels.

Replytojules



AnthonyJuly23,2015

DAMN!Wonderfulpost.Verycooltoseesomeoneputitalltogetherinonepost.Keepupthegoodwork

ReplytoAnthony

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