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JohnMaloneandHis
Cable/MediaEmpire
IvebeenmeaningtowriteaboutMalonesempiretosolidifymythoughtsand
notesintoasinglepost.AnotherreasonisbecauseLMCA/KandLBRDA/Kare
somewhatmaterialinvestmentsformesoithelpstoreviewthereasonswhyI
likethemsomuch.
Thisalsogivesmeanexcusetolookatotherpartsofhiscompaniesabitmore
betterthanpreviouslyandcreateareferencepostwhereIcancomeback
latertocheckandaddthings.
Thatbeingsaid,thispostisabitlongandmessy.Iprobablyshouldhavesplit
itup,butIwantedtotryhowitgetsreceivedthisway.Also,sorryfornotdoing
thetldrsthistime.
TakeintoconsiderationthatwithalltheNAVcalculations,spreadsheets,
theresboundtobesomemistakes.(ifyouspotanypleaseleaveacomment).

Anotheroutsider
JohnMaloneisoneoftheoutsidersfromTheOutsidersbook,similarlyto
TeledynesHenrySingleton.
HebecametheCEOofTeleCommunicationsInc,orTCI,whichreturned
incredible30.3%CAGRoverperiodof25yearsuntilitwassoldtoAT&Tata
nicepremiumin1999.HisperformancewasthebestoftheCEOsfeaturedin
thebook.
WhenMalonestartedasCEOofTCI,thecompanywasonthevergeof
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bankruptduetoexcessdebt.Ultimatelyhedidmanagetosurvivebypinching
thepenniesforyearsanditwaspresumablyduringthattimethathelearneda
lotaboutusingleverage.
Malonesstrategyconsistedoffewkeyelements:
1. Decentralized,lowcostoperations.Hecreatedastrongculture
withamixofincentivesandautonomy.
2. Smartcapitalallocation,accretivebuybacksatlowpriceandissuing
equityforacquisitionsathighprice.Horizontalandlatervertical
integrationatgoodpriceswereattheheartofhisstrategy.
3. Financialengineering,mostlyvialeverage
4. Taxefficiency>emphasisoncashflowsandgrowth.TCIalmost
neversoldanassetunlesstherewasataxangletoit.
SimilarlytoSingleton,withcapitalallocationdecisionshedidwhatwassmart,
notwhatwasexpected:
Itmakessensetomaybeselloffsomeofoursystemsat10timescash
flowtobuybackourstockat7times
TCIgrewmostlybyrollingupthefragmentedcableindustry,butinsteadof
buyingeverythingtheycan,Malonewasveryprudentaboutthepricethathe
paid.(usually5xcashflowsaftersynergies)
InthelatterpartofTCIshistory,hestartedtobuystakesincontent
companiestogetcontroloftheprogrammingandcontentthatthecable
operatorscarriedontheirsystems.Maloneacquiredaround30different
companiesfromcontentsideinthe80s(CNN,Starzetc.)
Finallyin1998hesoldTCItoAT&Tat40%premium.Soonafterthathe
watched$3.5bnofhisownnetworthtodeclinerapidlybecauseAT&T
managementdestroyedvalueincrediblyquicklybyoverpayingforacquisitions
andmismanagingtheirassets.
Malonewasntabletodoanythinghecouldntevensellhisstockbecauseof
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restrictions.Thisismostlikelywhyhestartedtovaluecontrolsomuch.
UltimatelyhemanagedtospinLibertyassetsoutofAT&Tandthatsbasically
howhiscurrentLibertyempirecametoexist.Greenblatthadtherights
offeringasanexampleinhisfamousbookYouTooCanBeaStockMarket
Genius:

Therightsoffering/spinoffwasstructuredsothatitwasverycomplicated
andthattherewouldbemassiveupsidetothosewhoparticipated.Thegenius
partwasthatitsimultaneouslydiscouragedmostinvestorstotakepartinit.
Anyonecouldhavepurchasedandexercisedthoserightssotherewasalotof
moneytobemadeforthosewhodidtheirdiligence.
Theprospectusofthedealwasalmost400pageslong,soitgivesyousome
ideaofthecomplexityofit.EvenBobMagness,thefounderandmajor
shareholderofTCIdidntunderstanditverywell.
Ibelievethisrightsofferingistheonethingthatsgrindingsomepeoplesgears
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aboutMalonesintegrity:thedealwasclearlystructuredsothatpeoplewould
bediscouragedtoparticipateiniteventhougheveryonehadtheequal
opportunityto.
IbelievethatfromMalonesperspectivetheimportantpartisthechoice.I
personallytaketheviewthatifMalonewouldwanttoenrichhimselfatthe
costofshareholders,hecoulddothat.
Afterfollowingwhathesdoneovertheyearsandhowmanypeoplehehas
madewealthierthroughhiscapitalallocationskills,Iminclinedtothinkthat
hesfairtoshareholdersofLibertyentities.
Idounderstandhispointofviewtooandwhyhewantedtofinallygetpaid:he
leadTCIfor25yearsandhadasmallpositioninthecompanydespitemaking
otherpeople(likeBobMagness)verywealthy.
ThesectioninGreenblattsbookiswellworthreadandthiswasjustapartofit
inrealityitwasabitmorecomplex.IalsohighlyrecommendthebookCable
Cowboywhichtellshisstoryandthehistoryofthemoderncablebusinesses.

Maloneonleverage(andwhyhelovesit)
Ilikeleverage.Ithinkleverageisyourfriendifyouareprudent
aboutit.Particularlyifthegovernmentmakesittaxdeductible.
Thesenotesaremostlyfromthe2012Maverickslecture(Highly
recommendedwatch):
Cablehasbeenhistoricallybeenabletosupport5xEBITDAleverage,
butitdependsoninterestrates
Iftheyarentfindingacquisitionsandyourcashflowgoesup,theytake
leverageupandshrinkequitywithbuybacks
Withhighleverageyoumusthavesomeliquidity,like0.5xEBITDAto
avoidliquidityproblem
Variouscompaniesusedifferentleverageprofiles,acompanywitha
flywheel,astableutilitylikenature(suchascable)willcarrymore
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leverage
ForMalonehedginginterestratesisareligionandtheyvealways
swappedtofixed
Theyarealwaysrollingmaturities,movingthembackandlowering
ratesifpossible
Hedginginterestratesandrollingthematuritiesmakesitsothatthey
havevisibilitywiththeirdebtandinterests
Theydontusuallyspeculatebyissuingdebtwithoutuseofproceeds
Iusedtosayinthecableindustrythatifyourinterestratewas
lowerthanyourgrowthrate,yourpresentvalueisinfinite.Thatswhy
thecableindustrycreatedsomanyrichguys.Itwasthecombinationof
taxshelteredcashflowgrowththatwas,ineffect,growingfasterthan
theinterestrateunderwhichyoucouldborrowmoney.Ifyoudoany
arithmeticatall,thepresentvaluecalculationtendstowardinfinity
underthatthesis.
LeverageisintrinsicpartofthebusinessesthatMaloneowns,soIwantedto
clarifymyownthoughtsandseehowitwilllooktheoreticallyonamadeup
cablecompanysfinancials:

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With5%growthforEBITDAof1000,keepingthe4Xleveragemultiple
(standardforMalonescablecompanies)and6%interestrate,theycan
investorbuybackshares4xtheamountthatEBITDAincreasedfor
theyearinissueddebtalongwithwhatevertheyllhaveleftafter
payingforinterest,capexandtaxes.
Ihavetoemphasizethatthisonlymakessensewhenyouhavegreat
operationalskills,utilitylikeproductsandgrowingcashflows.Alot
ofbusinesseshavegonebankruptbecauseoftoohighleverageandtoolow
understandingoftheriskssoitdoesmakesensetobecareful.
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Malonescableplaybook
Itsnotaboutearnings,itsaboutwealthcreationandleveredcash
flowgrowth.
SincehemanagedtospinLibertyoutofAT&T,hehasbeenbusyrollingup
Europes(andmorerecentlyUSandLatinAmericas)cableassets.Herearemy
interpretationsofhisplaybookandhowhemanagestobuyandoperatethese
companiesbetterthanotherpeople:
Firstofall,hedoesrigorousduediligence:Heknowstheindustry
probablybetterthananyoneandthusitshighlyunlikelythathedoesbad
deals.Mostofthetimefromtheoutsideitsnotalwaysclearhowthedealhe
makesisgood,butonceyouknowsomeoftheplaybookitsabiteasierto
figureout(Theresprobablymore,butIthinkthesearethemostimportant
ones):
Operationalimprovements,Maloneknowstheinandoutsofthe
cablebusinessandthushecanputhisownpeopletorunthebusinesses
betterthanthepreviousmanagement.Thisusuallymeansenhancing
productofferings,newproducts,etc.
SynergiesProgrammingcostsareahugeone,operationalsynergies
(forexample,theycanusescaletogetcheapersettopsfromsuppliers),
financialsynergies(sometimesiftheacquiredcompanyhasverylow
debt,thetransactionisdeveleringforMalonescompany),economiesof
scale
Optimizingthebalancesheet.Mostofthetimethismeansthat
Malonetakestheleverageoftheacquiredcompanyup.Thisispossible
(andlessrisky)mostlybecausehisCEOscanoperatethecompanyalot
better,achievehighergrowthandhighercashflows.
Hecanprioritizethelongtermview.Somecompanies(like
telcos)paydividendsanddontinvestmuch.WithCharter,ithasnt
generatedmuchFCFbecauseRutledgehasalongtermviewofthe
businessandhesinvestingheavilyinit.Maloneenablesthiswith
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strongcontrol.
WhenLibertyGlobal/Charterbuysacompany,theyarealwaystryingtouseas
muchdebtaspossible.Someamountofequitywillsometimesbefine
especiallyifthevaluationishigherthanthecompanytobeboughtinthat
casethetransactionwillbeaccretive.

Shareclassexplanations
Malonescompaniesalmostalwayshaveshareclassstructurethatgoesas
follows:
1. SeriesAsharesarenormalvotingshareswith1vote/share(LMCA,
DISCA,LBRDAetc.)
2. SeriesBsharesaresupervotingshareswith10votes/share,Malone
usuallyownsmostofthese(LMCB,DISCB,LBRDBetc.)
3. SeriesCsharesarenonvotingshares.Theseareoftenusedas
currencysothatvotingsharesdontgetdiluted.(LMCK,DISCK,
LBRDKetc.)
Allshareclassesareentitledtosameamountofeconomicincome.Ifyouare
buyingsomeofhisstocks,youshouldbuytheonethatscheapestusually
seriesCshares,butsometimestheseriesAsharestradebelowCshares
momentarily.(likeLBRDAvsLBRDKrecently)

Trackingstocks
Iregardthemaslargelytransitory.Ifyouareincubatinga
company,butitsnotreadytostandonitsown,trackingstockisa
greatwaytoidentifyit,focusalightonit,raisecapitalforiteven,but
notseparateitandmakeitstandonitown..yet
SomeofthestocksinMalone/Libertycomplexaretrackingstocks:
1. LibertyGlobalgroup>LibertyGlobal(LBTYA/LBTYB/LBTYK)
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andLibertyGlobalLatinAmerica(LILA/LILAK)
2. LibertyInteractive>QVC(QVCA/QVCB)andLibertyVentures
(LVNTA/LVNTB)
Trackingstocktrackstheeconomicperformanceofasubsidiaryofacompany.
Forexample,LibertyGlobalrecentlycreatedatrackingstocksfortheirLatin
Americaoperations(LILA/LILAK).Thiswayinvestorscaninvestineither
(EuropeorLatinAmerica)operations,butbothcompanieswillbenefitfrom
theconsolidatedbalancesheet(scaleadvantages).
Trackingstocksprovidefollowingbenefitswhencomparedtospinoffs:
Taxsynergiesiftherestwocompaniesunderoneumbrellaand
otheronesprofitableandotheronesnotbecauseitsgrowingfast,they
cansheltereachotherstaxes.
Operationalsynergiesbecausebothcompaniescanberunbyone
setofemployees.
Scaleadvantagessavemoneywithprogrammingcostsandsupplier
costs
Financialsynergies/consolidatedbalancesheetforexample
theycangetcheaperdebt
Protectionfromantitrustlaws
Thisapproachisunconventionalandmightbeproblematicunlessyouhave
strongcontrollingowner.Malonehassaidthattrackingstockshaveworked
forthembutnotforothersmostlybecausehecontrolsthecompanies:
Iftheresonlyonebananasplitandtherestwokids,howdoyou
decidewhogetsthebananasplit?Well,yougottohaveastrong
parent

Spinoffs
Inadditiontotrackingstocks,Malonelikestodospinoffswhenitmakes
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sense.Hedoesthisforafewreasons:
Tounlockvalue
Ifheplanstosellormoreusuallyswaptheasset,hespinsitoff
TheycanusetheclassCsharesascurrencytoacquiresomethingelse
forexampleLibertyBroadbandwasspinnedtoholdCHTRstakeand
LBRDKendedtobeusedascurrencyintheCHTR/TWCdeal
+ReasonsIforget
Inadditiontoallthese,itcreatesalotmoreopportunitiesthroughoptionality.
ConsiderforexampletheDiscoveryspinoff:iftheyhadntdonethat(andif
Malonehadntgivenupcontrolthere),futureM&AwithCharterwould
probablyhadhitmoreroadblocksbecauseofverticalintegration.(Orthisis
howIthinkitcouldhaveaffectedit)
GlennChancreatedthisamazingdiagramofthespinoffsandtrackingstocks
sinceTCIdays(hekindlyletmeuseithere):

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Asyoucansee,hehasbeenbusy.

Maloneownerships

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UnfortunatelyIcouldntfindthesourceforthisimage(for
credits/permission),butitssoawesomethatIcouldnthelpbuttopostit.
Whatsamazingisthatall/mostofthesecompanieswerespinnedofffromthe
originalLibertycompanythathegotoutwithfromAT&T.
Herestherecap:
1.LibertyMediaCorp(LMCA,LMCB,LMCK),votingpower47.1%,
economicvalue9.2%,Chairman

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2.LibertyBroadband(LBRDA,LBRDB,LBRDK),votingpower47.1%,
economicvalue9.2%(BeforeCTHR/TWCdeal),Chairman
3.LibertyGlobalGroupbelowincludestrackingstocksLibertyGlobaland
LibertyGlobalLatinAmericaandCaribbean,Chairman
LibertyGlobal(LBTYA,LBTYB,LBTYK),votingpower25%,
economicvalue2.7%
LibertyGlobalLatinAmericaandCaribbean(LiLAC)
(LILA/LILAB/LILAK),~sameasinLibertyGlobal
4.LibertyInteractivebelowincludestrackingstocksQVCandLiberty
Ventures,Chairman
QVCGroup(QVCA/QVCB),votingpower37%,economicvalue6%
LibertyVentures(LVNTA/LVNTB),votingpower33%,economic
value6%
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

Insidertrades
SoifyoulookatMalonesinsidertradingyouseehimsellingsmallpiecesofhis
holdingsalmostallthetime.Checkthetradesfromopeninsider.comNotice
thattheresabugthatshowsthathessellingAshareswheninrealityhes
sellingnonvotingCshares.
Ipersonallywouldntlooktoomuchintohissmall,$15msells.
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Forexample,hisLibertyMediastakeisworthsomethinglike$1.21.3billion,
soifhesellslike$5mworth,thatsaslittleas0.4%ofhisholdings.Becausehis
companiesdontpaydividends,sellingistheonlywaytogetcashoutofthem
soitmakessense.
Ithinkthatsfair.Themansalready74yearsold,sowhynotbuysomething
nicewhileyoustillcan?Ofcourseifhedsellabigstakeinacompany,that
wouldwarrantforcloserexamination.(Heusuallytriestoswapthemtoavoid
payingtaxes,though)
Ifhebuyssomething(whichIthinkissomewhatunlikelywithoutbigdistress
inprices),thatssomethingdefinitelyworthlookinginto.Lasttimehebought
wasLMCAinJune2013$2mworth.Lastbiggerbuyshedidwasin2012.

LibertyMediaCorporation
(LMCA/LMCB/LMCK)
Since2006,includingallthespinoffs,LMChascompoundedatroughly30%
CAGR.Alotofthisisbecauseoftheirincrediblyprofitableinvestmentin
SiriusXM,whichhassofarbeena20+baggerin5yearsorso.
LibertyMediaisbasicallyahighlyconcentratedfundwhereyoullgettoinvest
alongsidearguablythebestcable/mediainvestoroperatorever.Youcouldof
coursebuywhathebuysandmostlikelycomeoffwell,butyoudbemissing
outon,forexampleaccretivebuybacks,possiblefuturedealsattheLMCand
theVivendisettlement(moreonthatbelow).
LMCAownsover50%ofSIRIandconsolidatestheiroperationsintheir
balancesheets.Inadditiontothat,SIRIstrueprofitabilityisstillmaskedasit
hashighfreecashflowbutrelativelylowearnings.Thismakesthecompany
lookrichlyvaluedwhentherealitymightbesomethingelseentirely.
AtthetimeofwritingLibertyMediaconsistsoffollowingassets(figuresfrom
Q1/2015):
SiriusXM(SIRI)57.8%ownership
LiveNationEntertainment(LYV)~27%ownership
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100%ofAtlantaBraves,Forbesthinkstheyareworthover$1bn,but
takeitforwhatitsworth.LMCboughtthemfor$400msoImfairly
suretheyareworthatleastthatmuch.
+Smallstakesinvariousthings,seethefullassetlisthere
Inaddition,LibertyMediashouldbegettingaround~$1bnfrom
theirlawsuitagainstVivendi.Vivendihasappealedsoitstakingmore
time,eventhoughthelegalbattlehasalreadylastedoveradecade.
Latestnewsisthattheyexpecttogetthecashsometimenextyear.

SiriusXM
GoinglongLMCmeansgoinglongSIRI,soitswisetohavesomeideahowit
is.BecauseIdontwanttomakethispostmoremassivethanitalreadyis,Im
goingtocoverwhatIthinkarethemostimportantpointsaboutSIRI:
1. Marketcapat$3.73/shareis~$20.5bnmarketcap
2. Targeting4xEBITDAleverage(Malonehassaiditsgrowingsofast
itshardtokeepappropriatelylevered)
3. TheyarebuyingbackmassiveamountsofshareswithFCF+debt
4. FreecashflowforQ1/2015was$276m,up24%.Whatsmore
amazingisthatpershareFCFwasup36%.IbelieveFCFestimate
for2015is$1.25bnwhichwouldput2015FCFyieldto6%
Longstoryshort,ifSIRIcankeepgrowingatsimilarrates,itsundervalued.
FewreasonswhyMalonelikesit:
Ithasscalableplatformduetofixedcosts.Witheach
incrementalsubscribertheirmarginsgrowandFCFgrowsfasterthan
topline.
Subscribermodelbringsstabilityandenablesuseofhigherleverage,
enhancingreturns
Goodgrowthprospects:Usedcarmarket,goodrelationshipswith
OEMs(seeforexampleNissanconnectrollingouton2016)
Thebestoperatingmodelintheindustry,drivenbyexclusive
content
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Unique,monopolylikesatelliteandspectrumassetsandthus
themodelishard/impossibleforcompetitorstoreplicate.Itssomuch
easierforSiriustoreplicatethecompetitorsmodelsthanviceversa.
ArtistsandcontentproducerswanttogetpaidandSiriusmakesthat
possiblebyactuallymakingsufficientamountofmoneytopaythem.
OEMrelationshipsIfIremembercorrectly,SIRIisinstalledin
70%ofnewcars.

Thoughtsonrisks
Ithinkstreamingservicesofferingfreestreaming(Spotify,Pandora)would
havetodosomethingdifferenttodisruptSiriusXMsoIdontseethoseas
threats.Theyalsocantproduce(asmuch)exclusivecontentbecauseofthe
inferiorityoftheiroperatingmodel.
IneverwanttounderestimateApplesoIthinktheymightbeabletoleverage
theirexistingecosystemtocreateameaningfulcompetitor(Applemusic),
especiallyiftheycangetgoodexclusivecontent.Ithinkthisiscurrentlythe
biggestthreattoSIRI,butwellsee.IbelieveSiriushasaclearleadhereand
itsgoingtobetoughforAppletodisruptthem.
TheproblemwithApplemusicmostlyisthatasfarasIunderstand,itsnota
directcompetitortoSiriusincarrealestate..notyetatleast.Ibelieveyou
cantstreammusicasefficientlyviainternetduetowireless/cellular
limitations?Thismightchangeinthefuturethoughonce/ifwireless
infrastructuregrows.
ThebiggestthreattoSIRIwouldbeaservicethathassimilareaseofuseand
exclusivecontentwheretheserviceprovidercanpaythecontentproducersas
wellasSIRIdoes.Infact,theydhavetodosomethingconsiderablybetter
becauseSiriusisalreadysodeeplyingrainedtotheirtargetmarket.

Lawsuits
Thereareongoinglawsuitsoversomepre1972songsthattheyveplayed.I
dontknowwhethertheycanbemateriallastthatIheardtheycouldpay
somethinglike$200m,whichwouldntbetoobad.Ofcoursethisdoesnt
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meanthatthepossiblesettlementwontbehigher,butthisisoneofthose
thingsthatshouldbeconsideredwheninvestinginthis.
Another,morerecentarticleonthis.

SIRItaxfreedividendstoLMC?
SIRIisbuyingstockbacksuperaggressively,wecanestimatethatitwould
take23yearsforSIRI(debtassisted)buybackstopushLMCownershipabove
80%.
Afterowning80%ofSIRI,dividendswillbetaxfreeanditwouldgive
Maffei/Malonecombodirectaccesstocash.IftheNAVdiscountpersists
theyllprobablyjustbuybacksstockwhichwouldbemoreefficientthanSIRI
buyingitsstock.
OnepartthatIlikemoreaboutLMCincontrasttoowningtheirholdings
straightisthatyouvegotthesmartestpeopleonthebusinessoverseeingwhat
youown.IvelistenedandreadabouttheseguyssothatIknowthattheylldo
therightthingandIdontnecessarilyhavetowonderwhetherIshouldsellor
not.

ResourcesforSIRI
PunchcardsblogpostonSiriusXM
SIRIcalltranscriptsonSeekingalpha
TherewasrecentlyaSApostonSiriusXMCanada,whichisworth
lookinginto

LiveNationEntertainment(LYV)
LiveNationEntertainmentisthebiggestplayerinlivemusicindustry.Itlikely
hasawidemoatbecauseoftheflywheelfromcontrollingeveryaspectofthe
process:theysellthetickets,bookthevenues,paytheartists,collectthe
revenuesfromadvertisingandareintheprocessofmonetizingthelive
concertsviapartnerships.

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Ibelievetheydonthaveanymeaningfulcompetitors,sotheykeepongrowing
anditshardifnotimpossibletobuildscale(costeffectively)becausethe
industryissostronglycontrolledbyLYV.
LYVisgrowingitsownersearningsatnicerate.ItwillbenicetoseewhatLMC
planstodowiththeirstake:forexampletherewillprobablybesomesynergies
betweenSIRIandLYV.MalonehasreportedlybeenintalkswithVivendiwith
Universalinmindsotheyaretryingtofindpiecestocomplementtheir
existingmusiccenteredecosystem.
Forfurtherinformation+valuation,IreferyoutoLiveNationEntertainment
AnUnregulatedMonopoly?

Otherresources
VICwriteupsfrom2011and2013

Vivendilawsuit
LibertytooksomestockaspaymentfromVivendiforsomeassetsinearly
2000s,butVivendifailedtodisclosethattheywereinthemidstofaliquidity
crisis.
AtthetrialVivendisdefencewasthatLibertywastoostupidtodoadequate
jobofdiligencesotheydeservedtogetdefrauded.
Whoknows..Itmightwork!
MaloneonVivendisdefence
ThelatestnewsonthiswasheardintheQ4/2014quartercall:
Sohopefullywewillhavethisresolvedprobablybyearlynextyear
atleastinfrontoftheSecondCircuit.
SoifIunderstoodcorrectly,wecouldexpectforcashsometime(early?)next
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year.

Roughsumofparts
ImtotallynotgoingtogothrougheverylittlepiecewhattheyownsoIm
goingtousefiguresprovidedbythispresentation.Thefiguresaredatedat
April1stsotheyarefairlyrecent:

HeresmyquickspreadsheetwhereIusetheirpublicassetsvalue(April1st),
tookVivendijudgementintoaccountandupdatedSIRIsvalue:

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BythetimeImeditingthis(andbythetimeyouarereadingthis),thisis
unfortunatelyalreadyoldnews.Itdoeshowevergivesomesensehowitlooks.
Soincluding$1bnVivendijudgement,theroughNAVdiscountduringthat
timewas>20%.
TakeintoconsiderationthatwithLMCtheresacorporatelayerwhich
probablyshouldbecapitalizedandthusthestockshouldbeexpectedtotrade
underNAVinthefutureaswell.IdontthinkthoughthattheNAVdiscount
shouldbeashighasitcurrentlyis.
IdounderstandthoughthatthemarketdoesntgiveanyvaluetotheVivendi
judgementsimplybecauseitssoeasytoforget.Inadditiontothatits
uncertainwhen/iftheresgoingtobeapayment.

LibertyBroadband
(LBRDA/LBRDB/LBRDK)
Highspeedinternetisverysticky.Peopleloveit.Ithinktheywould
giveupfoodbeforetheywouldgiveuptheinternet.
LibertyBroadbandisbasicallyaholdingcompanythatowns>25%ofCharter
preTWCdeal.
BeforetheTWCdeal,thisiswhattheyown:
Charter28.84mshares,valueat$171.80/shareis~$4.95bn
TWC2.36mshares,valueat$180/shareis~$423m(Thesewillall
beconvertedtonewchartershares)
Truepositionseebelow
$700mincashwhichis/willbeinvestedinnewCHTR
$300mdebttoLibertyMedia
TheyalsohadTWCcalloptionswritten,whichaccordingtoQ1
filingswerefairlyvaluedat$71.5m.Idontknow/understandhow
theseworkwiththeTWCmergersoImgoingtotreatthemwiththeir
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Truepositiondevelopsandmarketstechnologyforlocatingphonesand
devicesonthecellularnetwork.IpersonallyhavenoideawhatTruepositionis
worthitsAdjustedOIBDAfor2014wasnegative$3m.GlennChanhadan
excellentpostonit,butImnotassigningitanyvaluejusttobesafe.
IthinkitspossiblethatTruepositionsvalueisntinitoperations,butinthe
factthatitsanoperatingbusiness.Section355exchange,aformoftaxfree
distributiontoshareholders,apparentlyrequirestheretobeanoperating
business.SounlessImmistaken,theywouldnthavebeenabletospinLBRD
taxfreeoutofLMCwithoutTrueposition.

Roughsumofparts

ThistooisalreadyoldnewsbecausethepricessurgedreallyfastafterIhad
done/writtenthese,whichisreallyirritating.
CornerofBerkshireandFairfaxLBRDA

Charter&TWCdeal
TounderstandLBRD,youhavetounderstandCharter,whichisbuyingout
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bothTWCandBrightHouseNetworksintherecentlyannounceddeal.
Togetthedealdone,LVNTAand3rdpartyinvestorssuchasSorobanand
Janapartners(whoalsohappenstobeonthesmartinvestorslist)investin
LBRDKstockat$56.23/shareandproceedswillbeusedinvestinginthenew
Charter.Thislooksfairforexistingshareholdersasyoucaninvestinthesame
sharescurrentlyatlowerprice.
ThisdealhasbeenwrittenkindaextensivelybyseveralwritersandIthinkIve
seenatleastfewspreadsheetsregardingthedeal,itsverygoodideato
produceyourownbecause1.youlearnsomethingintheprocess2.you
developmoreconvictiontotheideabecauseyouunderstanditbetter.
Charterisvaluedat10.5xEV/EBITDA
TWCwillbeboughtat$55.62bn/$22.69debt>$78.31bnEVand
about$8bnEBITDA.EV/EBITDAis9.8x.Adjustedforsynergies,
EV/EBITDAforTWCiscalculatedat8.3x
EvenwithoutsynergiesthedealisaccretiveforCharter.Thebestpart
ofthisdealisthatTWCassetsaremismanagedandtheyarebroughtunder
TomRutledge,whowillimprovetheoperations.
Greatpostsonthedeal:
ValueVenturepost
17Milepost
SATrevorChangpost
AndheresmyattemptinvaluingproformaCharter:

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Revenuegrowthisagiven,butwhythemarginexpansion?
1. Fixedcosts
2. Broadbandcustomersarehighermarginthanvideocustomersandare
growingfasterthanvideocustomersaredeclining(Rutledgealsohas
historyofdramaticallyreducingvideochurn)
Asfortaxes,IrememberreadingthattheNewCharteriseffectivelysheltered
fromtaxesuntil2019duetoNOLs,steppingupacquiredassets,capexetc.
Ivelaidouttwocases,9xEV/EBITDAvaluationand10xEV/EBITDA.Ifshare
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pricegoeslower,buybackswillbemoreaccretive,soIthinkitsnotthatbigof
adealinthelongterm.
Ithinkthatthemostlikelyoutcomeissomewherebetween13.518%CAGRin
themediumterm.Inthelongtermwellprobablyseelowmidteensreturns,
dependingonwhetherMalonesrightwithcableorwhethersomethingelse
happens.
WhatIloveaboutcableisthatitsaplayintooneofthemegatrends
thatIseebeinghugeinthefuture.
Alsonoticethatmymarginandgrowthassumptionsareabitlowerthansome
peoples,sotheremightbesomeupsidetothesescenariosifRutledgemanages
topullmarginsover40%andgrowthhigherthanmiddigitsp.a.
Therealitywillalwaysbedifferentfrommodels,forexamplebecauseRutledge
willbeinvestingmoreforthelongterm,soFCF/earningswilllikelybelower
andthustheremightbelessbuybacks.Inanycase,IbelievethatMalone
didntbullshituswhenhesaidduringLiberty2015AGMthathethoughtthe
dealwillhavehighteensIRR.
Inadditiontoallthese,theremightbesomeadditionalupsideifcapexwillbe
lowerinthefuture.Mymodelassumesthatthecapexwillstaythesamein
relationtoproformaEBITDA/EBITDAcapexratio.

TomRutledge
IfyouvefollowedCharterforawhile,youveprobablyheardthatRutledgeis
consideredthebestoperatorinthebusiness.Butwhy?
BeforeMalonerecruitedRutledgetoCharter,hewastheCOOofCablevision.
Duringhistenurethere,Cablevisionachievedthebestoperatingmetricsinthe
industry.Hesworkedincableindustryformostofhislifeandherosetohis
currentpositionfrominstallingequipmenttocustomerhomes.
WhenhejoinedCharter,herecruitedmostofhisteamfromCablevision.
MaloneisveryimpressedwithRutledgeandwhathedidwithCHTR,for
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example:
1. Simplifyingtheservicewithonepackage>thishelps
customernottocallthemmuchsothattheydontneedmuchpeopleat
customerservicing,whichinturndriveshighermargins
2. Goingalldigitalwheretheycanoffer50mbminimumserviceat
reasonablepriceandwiththebenefitthatwhendataconsumptionis
increasing,theyhavenoproblemwiththecapacity.
3. Withfixedtelephonehesaidthattheyaregoingtopriceitsothat
peoplecantsayno.
Ithinkresultsspeakforthemselves.Rutledgehasbeentheonlycableguy
growingsystematicallyinhighsingledigits.

Miscellaneous,interestingnotesonCHTR/TWC
ManyinvestorsbelievethatallhouseholdsintheU.S.havehigh
speedinternet.Infact,50%ofU.S.householdsusecableorfiber
internet,20%ofU.S.householdsuseDSLinternet,and30%ofU.S.
householdsdonothavebroadbandinternet.Asrecentlyas2012,U.S.
cablecompaniessuchasComcast,TimeWarnerCable,andCharterall
hadmorevideosubscribersthaninternetsubscribers.
Inotherwords,broadbandinternetisahugeopportunityinthefuture,
especiallyasdataspeed/capacitydemandgrows.
Someotherpointstobenoted:
TWCisyettoconvertalldigital.Theyhavealreadystartedthis
processandonceitscompleted,itwillbeadrivertoenhancethe
performanceofthecombinedcompany.Malonethinksthatitwill
take3yearstocompletethisprocessatTWC/BHN,butitwillbe
worthit.
Thedealwilllikelygothroughfasterthanpeoplethink
becausethethreecompanieshavealreadybeenexaminedbythe
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regulatoryentitiessotheprocessshouldbemorestraightforward.
Internetconnectivityisveryhighmargin,whichwilldrive
marginexpansioninthefutureforcablecompanies.
BrightHousealreadyhasawirelessservicewitharound45k
hotspotsinFlorida,couldaccelerateChartersexpansionefforts.
TWChasatechnologycalledHotspot2.0,whichenables
broadbandcustomerstohaveaseamlessexperiencewiththeiraccess
points.
OverlapwithFiOSisminimalwithbothCharterandTWC
under4%withFiOS(VZ)acrossgeographicfootprintvs.
CVC/CMCSA/TWCat45%/15%/12%
Itmighttake~3yearsforthebiggestresultstostarttoshow
up.ThereasonforthisisthatRutledgeplanstounifythecombined
companysproductofferingsetc.+upgradetheanalogsystemsduring
thetime.Thismightnotbepossibletodowithoutstrongcontrolfrom
Libertybecauseitrequiresalongtermview.
FromwhatIvereadandunderstood,thesettopboxesthatCHTR
isdeploying(Worldbox),ismilesaheadofcompetitors.For
example,itsbackwardscompatible,cloudbased,theycanhave
multiplesuppliersbecauseoftheirownsecuritytechnologyused
drivinglowercostsetc.

Cablescompetitiveadvantage
CablehasanadvantagewithbroadbandagainstDSLbasedincumbent
providersbecausecablerequiresconsiderablylessincrementalcapitalto
increasespeedsontheirservice.
Thisadvantagehastobeusedasfastaspossibletoensurelastingcompetitive
positionandthisiswhyChartersRutledgehasbeeninvestingforthefuture,
sacrificingfreecashflowintheshortterm.
Anotherthingthatsafactoristhatthetelcoshavecommittedtoahigh
dividendpolicy,whichrestrictstheirabilitytoinvestininfrastructureaswell.

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Itcostsabout$3,400tomakeaneworupgradedconnectiontoa
singleaveragesuburbancustomer,includinginfrastructure,line
extensionsandhomeinstallation.Sincetheaveragemarginper
householdis$50to$100permonth,thepaybackcaneasilytakemore
thansixyears.
(sourceforabovequote)

Mobile/wifiopportunity
Datademandonwirelessnetworksaregoingtocreateascarcity
situationincreasingly,wheremoreandmoreofdatawillhavetobe
downloadedthroughterrestialnetworks.
Maloneisvisioningthatcableisgoingtocreateanationwidewifinetwork,
wheredevicesaregoingtoworkseamlesslywhethertheyareathomeor
elsewhere.
Ultimatelythesenetworkswillhavetoworktogethereithercooperativelyor
throughconsolidation.
Hementionedthatwificostperbithasthepotentialtobecheaperthanthe
cellularspectrumcost.ThisisinterestingbecauseMarkMasseymentionedin
hisinterviewthatLibertyGlobalisintheprocessofmakingits15m+customer
modemsintoWIFIhotspotsthatcanbeaccessedbyallcustomers,creatinga
wifinetworkforthebenefitofthecustomers.(IthinkIvereadthoughthatthe
Horizonwifirangeiskindashitty)
Myguessis,thegovernmentwouldbegreatlypleasediftherewasa
thirdmeaningfulalternativetothetwodominantwirelesscompanies.
OnethingthatpeoplehavemissedwiththeTWC,isthatduetohistorical
quirk,theyhaveaperpetualrighttobeingaMVNO(MobileVirtualNetwork
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Operator).Charterdidnthavetheserights,butthroughtheTWCdealtheydo
byextension.
Thebestthingaboutthisisthatbecausethecostsarelargelyfixed,thiswillbe
bothagrowthandmarginexpansionopportunity.Italsohasthepotentialto
createalotofvalueforthecustomerwithpossiblequadplayswhereall
communicationsishandledthroughthecablecompany,creatingevenmore
stickiercustomerrelationships.

VOD
MalonetalkedalsointheAGMaboutvideoondemand(VOD)andhowthe
cablecompaniesfailedtocapitalizeonthat,whichultimatelyledtothe
emergenceofNetflixandHulu.
Hestillbelievesthatbyleveragingtheirexistingdistributionsystem,itstill
couldbeanopportunity.

Theultimategoal
FromwhatIvegathered,makingtheconsumerstickyandsecuringthe
leadershippositionwithnewproductsandofferingbetterservicethantelcosis
Malonesultimategoalwithcable.
Hewantscabletobetheonestopforcommunicationsbybundlingallofit
together:bestbroadbandspeedatthebestprice,cheapwififorseamless
experienceinandoutofhome,mobileplayasMVNOandmaybemakinga
competitiveVODproducttocompetewithNFLXandHulu.(+somethingI
forget)
Theinfrastructureofcableofferssomanypossibilitiesinthedataheavyworld
oftomorrowanditcurrentlyhasaleadwhichmustbetakenadvantageof
beforecompetitorscatchup.
LetshavealookatMalonesinternationalcableoperations:

LibertyGlobal(LBTYA/LBTYB/LBTYK)
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LibertyGlobalconsistsmostlyofoperationsinEurope,wheretheyarealready
pastthebiggestconsolidationphase.
Itskindabigatover$42bnmarketcap@$47.9/share,~881.79mshares.
AsforthevaluationIthinkitsaround10xEV/EBITDA,with5xEBITDA
leverage.
Again,Imnotgoingtogoindetailherebecausetheressimplynotmuchto
say:alotofwhatshappeningwithCharterisapplicabletoLibertyGlobal,
thoughIthinkRutledgeisbetterCEOthanFries.
Ibelievethattheyaremostlydonewithbigdeals(likeFrieshassaid),butId
neverruleoutthechanceforthemtodoamegadealifagoodopportunity
presentsitself.MaybeMalonewillfigurehowtogetthebananaoutofthejar
(inotherwords,doadealwithVodafone)
HimtalkingaboutVodafone:
Theprincipalbarriertous,andImtalkingphilosophicallyhere
Imnotmakinganoffertoanybodyphilosophically,youhavea
differentviewofhowalargecompanyshouldcapitalizeitself,Malone
said.Theirphilosophyislowleverage,lowriskandhighcashpayout
totheirshareholders.Iprefertogrowequityvalue.
FromMalonespointofview,Vodafoneisruninefficiently.Theresalotof
valuetobecreatedbecausepeoplehaventfiguredouthowtorunthecable
systemsaswellashedoes.
Sowhatsnext?Cableconsolidation,accordingtoFriesisprettymuchdonein
Europe,sothenextlogicalthingafterhorizontalexpansionisvertical
integrationandfocusingonpenetrations(whicharerelativelylow)and
operationalprowess.IbelieveLibertyGlobalwillbeparticipatingincreasingly
moreinthecontentsideandtheyvealreadydonesomeJVdealswith
Discovery.

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[edit]Also,seecablepenetrationcomparisontablefurtherdowntoseethe
LBTYAspotentialintermsofincreasedpenetrationrates.

Horizonsettopboxproblems?
TherehasbeensomeconcernsthatLibertyGlobalsnewHorizonboxsucks.
ThereareseveralthreadsthatcanbefoundonGooglewherepeopleare
complainingaboutit.
Evenasrecentlyas7monthsago,therewasaredditthreadwherepeoplejust
slammeditdownandIcantotallyunderstandthat:nothingmakesmemore
madthanusingsomethingregularlythathasashittyuserinterface.
ThesilverliningherecouldbethatLGIcanupdatetheboxesremotelyand
apparentlytheyvemanagedtofixsomeproblems,butIfinditweirdhowthey
rolledoutaboxEuropewidewhichpeopleconsideradisasteruserinterface
wise.
ThismightnotbematerialtoLGIespeciallyiftheymanagetofixthebiggest
shortcomingsbutIdohopethattheygettheirshittogetherwithit.
Ididfindthislittlepiecewhichtalksabouttheirnewboxwhichislaunchingin
NetherlandsinconnectionwithZiggoacquisition:LibertyGlobalhadgottena
lotofcomplaintsabouttheoldboxsotheyapparentlymanagedtoaddressthe
compaintsandupgradedit.Thisissomewhatencouraging.

LibertyGlobalLatinAmericaand
Caribbean(LILA/LILAB/LILAK)
AboutaweekagoLibertyGlobalcreatedatrackingstockfortheirLatin
AmericaandCaribbeanoperations(LiLAC).
Forstarters,checkouttheLiLACpresentation.
LILAKownsfollowingassets:
VTR,ThebiggestcablesysteminChile
60%ofLCPR,LibertyCablevisionPuertoRicoajointventurewith
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Cablevision,wheretheyessentiallyhaveamonopolyif/whentheChoice
acquisitioncompletes
LILAKlikelyhasthelongestrunwayintheempire.Tensofmillionsof
peopletherearestilladoptingthemodernlifestylesothereshugepotentialfor
Malone/FriesimplementtheplaybooktherewithmassiveM&A+organic
growth.
EvenifLiLACforwhateverreasonwouldbecomedistressed,itsstilllegally
partofLibertyGlobalsotheysharethebalancesheet.Idontknowhowthe
matterwouldbesolvedfromtheperspectiveoftheshareholders,but
ultimatelyIthinkprovidessomemarginofsafetytotheinvestment.
DespitetheeconomicproblemsinPuertoRico,thecablerevenueshavebeen
growingmostlybecauseoffavorabledemographics:Myimpressionisthat
PuertoRicoisstilladevelopingplacewherepeoplearestilladoptingto
lifestylefilledwithTV,computersandespeciallytheinternet.Thisshould
drivehighsingledigitgrowthintheregionforthecablesystemthere.
LiLACmightexperiencesomeproblemswiththeeconomiesofLatinAmerica,
butIbelieveonehastothinklongtermaboutthis.IthinkIvereadthatthey
hedgesomeoftheircurrencyexposure.
HeresmyattemptinvaluingLILAK:

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TakeintoconsiderationthatearningsinthiscaserepresentsnormalizedFCF
withnormalizedmaintenancecapex.IthinkthatLILAKwillhavehighercapex
duetonewbuildopportunitiesandthuslessbuybacks.

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Herearethepopulationpyramids,whichgivesomesenseofthepotentialof
thedemographics.

Comparisonofcablepenetration
Ibelieveoneofthekeysofjudgingcablecompaniesistheirpenetrationrate:

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Fewnotes:
LiLACpenetrationlookmature,butmostgrowthcomesfromfavorable
demographicsbecausemostpeopledontevenownacomputeryet
LibertyGlobalhasagreatopportunitywithInternetpenetration,
thoughImnotsurewiththeindividualcountrieshowthemarketsare
there.LGIhasgoodinteractiveserviceabouttheiroperationsintheir
webversionof2014AnnualReport.
AtfirstsightyoumightnoticethattheProFormaCharterspenetrationrates
arehighlysimilartoComcasts.Itrepresentshowintrinsicallydependentthe
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futureperformanceofthecompanyisofRutledge.

Bonus:CWC
Article:MalonetotakestakeinCWC
CWCisaUKbasedcableandwirelesscompanyoperatingintheLatin
America.TheyrecentlyacquiredColumbusandapparentlythetransaction
madeMaloneamajorshareholderinthecompany.
CWCappointedThadYorktotheirboardofdirectors,whoisthemanagerof
Malonespersonalbusinessentities.
ThadheldseniorpositionsatTelecommunicationsInc.(TCI)and
TCIInternationalthatrangedfromoperationstofinanceinTCIscable
TVbusiness.HestartedinthecabletelevisionbusinessasanInstaller
forTCIwhileattendingcollege.
TheressomespeculationthatCWCatsomepointcouldbefoldedintoLILAK
andthusMalonecouldendupowningbiggerpercentageofitthannow.
ThisbegsaquestionwhetheryoushouldinvestinCWCtoanticipatethisdeal?
Illhavetoworkonthismyself,butheresthequicknumbersonCWC:
EBITDA$585mLTM
Marketcap4.368B*69p=3bnGBPor$4.7bnUSD
Currentleverage3.6xEBITDA(target2.53,whichislow,butwillbe
likelyuppedifMalonegetscontrol?)
Q1netdebt$2366m
EV/EBITDA=$7066/$585>12x
With12xEV/EBITDAitlooklikealotofthepotentialisalreadypricedin
whileLILAKistradingunder10x.Currentlyitseemsthatonvaluationbasis
therewouldbemorevalueinLILAK,butoneshouldntunderestimatethefact
thatMaloneownsmoreCWCthanLILAK.
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ImprettysurethattherewillbeadealatsomepointandMalonewillown
moreLILAK.
Iftheresoneconclusionthatoneshouldhavehere,itsthatMaloneseesalot
ofpotentialincableinLatinAmerica.

LibertyInteractive
LibertyInteractiveconsistsoftwotrackingstocks:
1. LibertyVentures(LVNTA/LVNTB)
2. QVC(QVCA/QVCB)
TherationaleforthesebeingunderthesameumbrellaislikelybecauseQVCis
profitableandVentureshassomeinvestmentsanddebtwithfavorabletax
attributessoLVNTAcansheltersomeofQVCstaxes.
Quicklookatboth:

LibertyVentures(LVNTA/LVNTB)
Thisoneseffectivelyapublichedgefund

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LVNTAconsistsofnumerousequitystakes,whollyoralmostwhollyowned
digitalcommercebusinessesandsomederivativesthenoisystuff.
Thekindofstuffyounormallywouldnttakepublicasitstoo
complicatedandanalystsdontwanttomesswithit
Fewnotes:
1. TheirinvestmentsphilosophyisthekindthatIvegrowntolikea
lotlately:SeekhighROICbusinesseswithreinvestmentopportunities
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atattractivevaluations.
2. Someinvestmentsaretaxdriven(forexample,Greenenergy),
meaningthatwithouttheirfavorabletaxattributestheywouldntbe
there.
Thelatestpresentationhadshortdiscussionabouttheircurrentinvestments
andwhattheyareattemptingtodisrupt.Ihighlightedtheonesthatbelongto
LVNTAcurrently:

Theirlatestdealistobuy$2.4bnworthofLBRDKatNAV($56.23)andtheir
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existingTWCstakegetsswappedwithLBRDforequity.Thiskindofreinforces
howattractiveMalonethinksLBRD/newCharteris,thoughIalsothinkthis
arrangementwasneededtogetthedealdoneandtoavoidinvestment
companyactwhichwoulddemolishthesupervotingsharestructure.
WhatsinterestingaboutVenturesisthattheyaregettingannualcashflow
fromQVCbecausetheyshieldsomeofQVCstaxes,thoughcumulative
deferredtaxliabilitygrowsaswell:

Heresmyunderstandingofthewholearrangement:Becauseofthefavorable
taxtreatmentfrombondstheygettoinvestthecashfromtaxshield
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beforehandbeforetheyhavetopaytheliabilitiesbackinfull($5.1bn)in2029
2031or1416yearsfromnow.
Theyllhavetopaytotalof$5.1bnstartingfrom2029.Beforethistheycan
investthecashthattheyaregoingtogetbeforehandfromtheirarrangements
soyoullhavetodiscounttheirperformanceuntiltheyhavetopaythetax
liabilitiesback.
Inotherwords,LVNTAiskindofaleveredinvestmentvehicleplay.
SounlessImwrong,theyllhavetopay$7.2bnin20292031andsoto
determinehowmuchLVNTAisworth,youllhavetoestimatehowmuch
theyllbeabletogrowtheircurrentinvestments+taxcashflowtheyaregoing
togetinthemeantime.
HeresasnippetfromthespreadsheetthatImade:

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Imalmost100%surethatIvemadeamistakealongthelinebecauseLVNTA
issocomplicated,butitssomething.Noticethattheirleveredstructure
resultstoCAGRperformancebeinghigherthantheirgrowthin
investments.
1. Ivaluedtheirecommercebusinessesat$1bn
2. Iassignedvalueof0togreenenergyforsafety
3. Myhopefullyconservativevaluationfortheirinvestments+businesses
is~$8.5bn
4. ItookthecashflowtheygetfromshieldingQVCtaxintoconsideration.
5. TakingintoconsiderationMalone&Maffeicombotrackrecord,Ithink
10%growthexpectationininvestmentsmightbetooconservativeand
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thatswhyIputfewdifferentscenariosthere.
6. InoticedthatyoucanvaluethisroughlybytakingtheestimatedROIof
LVNTAandadding2%togettheCAGRbecauseofleverage
IfyoulikeExpedia,theirotherinvestmentsandLBRDKatNAV,thiscoulda
goodwaytobuyintoit.
Also,takeintoaccountthattheycurrentlyhave~$700mworthofdeferredtax
liabilitiesfromtheirequities,butIwouldntbetooworriedaboutthempaying
taxesunlessnecessary.
Oneoptionthattheyhave,whichtheyalsodidwithTripadvisoristospinoff
theholdingsviaReverseMorrisTrust(anotherarticleoninvestopedia)and
monetizethemthatwaytaxfree.

Somerisks:
Inadditiontonotinvestingtheircashwellenough,thebondsthataredue
2029areexchangeable.Iftheyarecalledunexpectedly(likeifoneofthe
bondholdersgetstakenoutinM&Aevent),LVNTAhastopaybeforehandfor
theliabilities.Thegoodthingisthatthebondholdersareincentivizedtohold
untilmaturity.
Oneoftheproblemsisthatitcanbehardforthemtofindattractive
investmentsgoingforward,especiallyifthecurrentbullruncontinues.They
dohavetheoptiontobuybackLVNTAshares,grantedtheyarepricedfairly.

Scenariosformonetization
ThisfairlyrecentSumzerowriteuponLVNTAwaswrittenbyapersonwho
seemssmart/knowledgeableandcamewithscenarioswhereLVNTAcould
monetizetheirassets.Ifyouareinterested,Ihighlyrecommendyoutoreadit.

Malonesellseverythingbutthis?
Imightbelookingabittoomuchintoit,butrememberwhenIwroteabout
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youcheck,youmightnoticethatforsomereasonhehasntsold/isntselling
anyLVNTA.Theredoesntexistnonvotingsharessothatmightbeonepartof
itthoughIdontknow.

NowthatIvegotabitbetterunderstandingofLVNTA,Igetwhysomeone
wouldwanttoownthis.Improbablygoingtoinitiateasmallposition,keep
followingitandtrytounderstanditevenbetter.

QVCGroup(QVCA/QVCB)
Forme,QVCisoneoftheleastinterestingpiecesoftheempire.Itconsistsof
QVC,aTV/onlinemultichannelretailerandastakeinHSN.
BecauseImnotveryinterestedinit,IllcoverwhatIcancomeupfornowand
referyoutoabetterandmorecomprehensivewriteup:
Slowgrowthletsfaceit,retailingisreallyhardandcompetitive.
QVCiswellmanagedandithasgoodprofitability(despite)beinga
retailer.
AssetlightdriveshighFCFwithverylittlecapitalexpenditures
mostofthecashflowgoestoaggressivebuybacks.
3xadj.OIBDAleverage
Contentdrivenforexample,theyareproducing2.5mminutesof
highqualityvideosyearly.
Developingonlineshoppingexperienceaggressively,whichis
IIRCatleast>50%oftheirsales.
Mostoftheirproductsareexclusive,whichcreatesadditionalvalueto
customersandalsomitigatesAmazonthreat.
Customersaresomewhatloyalasmostofthesalesarerepeat
purchases.
MyconclusionisthatQVCisagoodbusiness,butnotasgreatasIconsider
otherspartsofMalonesempiretobe.Asexpecteditswellmanaged,thoughif
itwasntitprobablywouldntbethereasitwouldhavebeenswapped/sold
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out.
Thebest(andtheonly)writeupthatIvereadonQVCisbyValueVentures
from2013.Highlyrecommendedifyouareinterested.

Discovery(DISCA/DISCB/DISCK)
IveactuallywrittenaboutDiscoveryafewmonthsback,butIwouldnt
recommendthatposttoanyone.BackthenIunderstoodalotlessaboutthe
companyandtheindustryandIstillfeellikeIdontunderstandeitherofthem
well.
MyimpressionisthatDiscoverysCEOZaslavisprettygoodoperatorand
theyvebuiltscalefairlywell,butyoucanonlydosomuchwithassetsthatlook
relativelymatureatleastintheUS.
Internationalrevenuesarebeexpectedtogrowbothorganicallyanddueto
M&Ainthelongterm,butitshardtosayhowmuch.
Scaleisimportant.Yougetmorenegotiationpoweroverdistributors
dependingonhowmuchcontentyouprovide.Inadditiontothat,content
productioncostsarelargelyfixedsothebusinessenjoyseconomiesofscale.
Malonehashintedthattherecouldbeaoncomingcontentconsolidation.
Thebusinessisassetlightmostoftheircostsarerelatedtoproducing
contentandothercostsaremostlyfixed.Thismeansthatthebusiness
generatesalotoffreecashflow,whichhashistoricallybeenusedtoshrinkthe
equity.
DISCmakesabout45%ofmoneyfromdistributionandrestfromadvertising
andother,sodistributionissignificantpartoftheirbusiness.Theycan
demandmoremoneyfromcableoperatorswhentheybundlealotofchannels
together(scale)andthesecostshavehistoricallybeenforwardedtocustomers.
IbelieveinthefutureDiscoverysbusinessmightbeunderpressure
becauseinternetcantnecessarilybecontrolledandmonetizedaswellcurrent
distributionsystemsthroughCable.WhenIlookathowpeopleofpeoplein
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their20susingcontentviainternet(andhowIpersonallyuse),thisis
somethingthatIthinkhasfairchanceofhappeninginthelongterm.
Becausebundling,accordingtomyunderstanding,isalargepartofDiscoverys
businessmodel,thetrendofpayingforwhatyouneed(asopposedtopaying
forwholepackage)wouldhurtthebottomline.
Channelpopularityanddemandisprobablyamitigatingelement.Discoverys
channelisinthetop5ofcablechannelsandIbelievesomeoftheirother
channelsfareprettywell.
AsforthevaluationIdonthavemuchinsightsitspricedatabout~18
P/FCF,EV/FCFbeingsomewhathigher.IftheycangrowAOIBDAinthelong
term,debtenhancedbuybackswillshrinkequityfastenhancingreturns.The
onlyproblemwithlongtermgrowthisbeforementionedtrends,whichiswhy
Idontfeelbullishonthestock.

Starz(STRZA/STRZB)
StarzisanentertainmentbrandownsfewpayTVchannels,distributes
movies,seriesanddoesforhire2Danimations.
Itsfinancialsfromthepast4yearsdontlookgood,atleastcomparedtoother
partsoftheempire.
IfoundthisreallygoodanswerfromMalone(fromsomeinterviewmostlikely
in2013),creditstooriononCoB&F:
Starzcangoeitherway.Itcangetbiggerthroughacquisition
oritcangetmergedintosomebodywhocandriveembetter.
MyviewisStarzneedstobepartofsomethingbigger.They
needacurrencytogetthere.Andsothisgivesthemastockanda
currency.Ifsomebodywantstocomeandmakeaproposalafterits
spunforwhyitwouldbeagreatcombination,youknow,wellbeall
earsatthatpoint.

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Inotherwords,Malonewantstosell/swapit.
Asastandaloneitdoesntseemhavemuchpotentialandtheyareapparently
tryingtofindbuyersforthebusiness,butwithoutsuccess.Forthepastyears
theyvestarteddoingoriginalprogramming,whichiftheyhitajackpot
wouldprobablyhelpthemalotinfindingabuyer.

Lionsgate(LGF)
RecentlyMaloneswappedsomeofhisStarzstakefor3%ofLionsgate.Idont
knowwhatheplanstodowithithedidsaythatitslikealearning
experienceforhim:
Imanengineer,whatthehelldoIknowaboutcontent?Tryingto
understandwheretheseideascomefrom,howtheygetcreatedand
produced.Thedevelopmentofstoriesisreallygoingtobeimportantin
thisrandomaccessworldthatReedHastingsisdrivingusinto.
Now,eventhoughMalonestillhasinvestmentsincontent,hedoesntcontrol
themasitcouldpresumablycreateproblemswithregulationduringcable
consolidation(ashesaidinthe2015AGM).Ithinkhesalotmoreattractedto
cableandLMC.
Thisisntausualinvestmentforhim:makingmoviesisveryexpensiveandthe
businessdoesntenjoywhatMaloneusuallylikesinacompany:moat,
customerstickiness,recurringrevenuesetc.
Malonemightbethinkingthatcontentaggregators(likeDiscovery)could
becomeunderpressureduetorapidexpansionofinternet,whilethosewho
develop/createthecontent(likeLionsGate)couldkeeponthrivingand
perhapsmakemoremoneybecauseoflackofthemiddleman.
Anyways,IthinkthemostplausibleexplanationforthisisthatMalonewants
tobenefitfromlikelyoncomingcontentconsolidation(i.e.LGFgetsbought
out)orhethinksthatcontentcreatorsaregoingtoleveragetheinternet
heavilyagainstcurrentdistributors.Idontknow.
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Itcouldalsobepossiblethathecouldsomehowleveragetherelationshipwith
LGFtoextendtohisother,heavilyskewedintodistributionkindof
companies.
OfcourseImightbemissingsomekindofanglehereandImeagertosee
whatitis(iftheresone).
WhyDidJohnMaloneinvestinLionsGate?

AscentCapital(ASCMA/ASCMB)
NowthisisanoddthingandIalmostmisseditcompletely:Malonenevertalks
aboutit,hedoesntsitontheboard..buthestillapparentlyowns~4%ofit.
ItsasecuritymonitoringbusinessIglancedatitanditmighthavepotential,
butforthemostpartIdontfeelveryinterestedinitbecausetheressomuch
moreinterestingstuffgoingonwiththeothercompanies.
Ithinkhesnotrequiredtoreporthissells,soitspossiblethathesselling.
Cantbesurethoughuntiltheresanewproxystatement.

Bonus:GrupoTelevisa(TV)
TelevisaGrupoisthebiggestcable/satellite/mediacompanyinMexicoand
Spanishspeakingworld.Apartfromitsamazingassetsandseculartrend
opportunity,itsinterestingbecauserecentlytwoMaloneslietunenantsjoined
theirboard:MikeFries(LibertyGlobalCEO)andDavidZaslav(Discovery
CEO).
TheresafairlyrecentpresentationbyGameCreekCapital,wherethey
estimateTVstargetpricetobebetween$4557/share.WhatIwantto
highlightfromtheirpresentationaretheassetsthatthecompanyisholding:

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Herearemyquicknotesfromthepresentation,butIhighlyrecommendyouto
checkitoutyourself.
TVhas38%stakeinUnivision,whichisabouttoIPO.TValso
collects12%royaltiesfromUnivisionsrevenues.Asabonus,the
royaltyratewillincreaseto16%+in2018.
Theyhaveexcellent,dominantassets:theircable,satelliteand
contentnetworksare#1measuredbymarketshareinMexico.
Contentbusinessisslowgrowth,shouldhavesomerunwayleft
Skybusinessisgrowingatlowdoubledigits
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Cablebusinessisveryhighgrowthandshoulddrivecashflows
strongerinthefuture
CableconsolidationinMexico/LatinAmericaisyettohappenand
MikeFriescandefinitelyhelpwiththat.
TVtodayremindsofComcastinthelate80s,whichiftrue,
couldbeagoodopportunity.Theirassetsmightbeevenbetterasfaras
Imconcerned.
DemographicsofSpanishspeakingworldarealongterm
opportunityonlyaround50%ofMexicanspopulationisusing
internet.
Verticalintegrationprovidessynergies.
Aboutthemanagementteam,Idontreallyknow.Theyhavemanaged
tobuildgoodassetsandthecompanyseemstobeingoodshapesoIm
inclinedtothinkthattheyaregood.TheBODadditionsraisesmyhopes
foroptimizingvariousaspectsofthecompany(re:Maloneplaybook).

Ithinkthisimagemakesthedemographicpotentialclear.
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Asfortheconcerns,wearetalkingaboutMexico.Imnotfamiliarwithitat
all,butmypreconceptionisthatthereiscorruption,canbelackingin
corporategovernanceetc.ThegoodthingisthatTVdoeshavealong
operationalhistory,soasfarasIknowthereisntaprecedentformuchshady
stuff.
Eventhoughthecompanyhasgreatassets,theyseemtobeunder
managed.Forexample,theyhavereallylowleveragewhichtheyare
justifyingwithfirepower,butforwhatexactly?
Whatthethingisworththen?Imnotsure,butherearetheprimarynumbers:
(FiguresareaccordingtoQ2presentation)
1. Marketcap:$22.5bn($36.25/share)
2. Netdebt~$3bn
3. EV/EBITDA~11x/2015accordingtomyspreadsheet,including
estimatedUnivisionstake
TherearealotofmovingpartstheGCCanalysisdoeslookcredible,butI
dontreallyunderstandpossible(regulatory?)problemswithMexicoandthere
couldalsobesomethingthatImnottakingintoconsideration.
Operational&financialriskwithTVlookslow,butitsdefinitelynotas
optimizedasMalonescompaniesare,whichhindersthegrowth/profitability
ofthebusinessgoingforward.
Ibelievethatunlesstheircapitalallocationskillsimprove,thebusinesslooks
~fairlyvalued.
Asaninterestingsidenote,inLibertyMediasAGM,Malonewasasked
aboutit,buthesubtlyignoredit(implyingthathewouldntwantattentionto
it?).Itspossiblethathesimplyforgottoansweritsincehegavesuchalong
answertotheotherquestion,butitwouldbe..Outofcharacter,letscallit
that.
SoTVcouldbesomesortofbonusforthewholeLibertyfamilyanditlooks
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likeMalonehashiseyesonittosomedegree.
Coincidentally,LiLACtrackingstockstartedjusttradingandthetimingis
interestingtoputitmildly.LiLACspresumedprimarypurposeistorollup
LatinAmerica,whichaccordingtotheLiLACpresentationisripefor
consolidation.
2014Businessdescription(includes2014lettertoshareholders)

Whereisthemostvaluerightnow?
Takeintoconsiderationthatthesearemyviewsonwheretherecouldbemost
valueandeventhoughtheydoreflecttheeconomy
#1IbelieveinthelongtermLibertyGlobalLatinAmericaand
Caribbean(LiLAC)operations(LILA/LILAK)hasthelongest
runwaywithorganicgrowthandaccretiveM&A.Ialsothinkofitas
littlebitmoreriskierthanthemorematureassetsinEurope/US.The
stockdroppednicelysinceitstartedtradingpresumablybecauseindex
fundsfocusedonEuropearesellingit.Unfortunatelyatthetimeof
writingitsreboundedsome.
#2IfSIRIcankeepgrowinginmediumtermaswellasitcurrentlyis,
LibertyMediaCorporation(LMCA/LMCK)canbethesecondbest
bet(maybeeventhebest)inthemediumterm.Iviewitashigherrisk,
higherrewardsituationcomparedtonewCharter,mostlybecauseIm
unsureofSiriusmoatandwhethertheresone.
#3ThethirdbestopportunityIbelieveisinLiberty
Broadband/Charter(LBRDA/LBRDK/CHTR),whereMalonehas
beenputtingmoremoneyindirectlythroughLVNTA.
LVNTAcouldbeajokerofsorts:itcouldprovetobemorevaluable
thanitscurrentmarketcapwouldwarrant,butIbelievetheresmore
risktoo.Itsreallycomplexwiththetaxarrangementsandits
essentiallyabetonMalone&Maffeisabilitytomakegreatinvestments
beforetheirliabilitiesareduein15years.
LBTYA/K,despitecurrentlybeingthebiggestcompanyoutofthe
empire,stilllookslikeithasnicerunwaywithrollingnewproductsand
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relativelylowinternetpenetration.
Contentconsolidationcouldbeanopportunity,butIdont
understandtheindustryanditsprospectswellenoughtomakea
educatedguessaboutit.
Bonus:TVcouldbeagoodlongtermplayasithasunmatchedassets
andseculargrowthopportunity,butunlesstheircapitalallocation
improvesIbelieveitsfairlyvalued.This(asfarasIknow)isnta
Maloneholdingsoitskindofaofftopic,butIthinkitmakesforanice
bonus.
Somethingstokeepaneyeon:
1. ThetheoryisthatthebestideasgotowhatMaloneownsthe
most,inotherwordsLibertyMediaCorporation
(LMCA/LMCK).Hemostlikelyalsoprioritizesthosewhichhecontrols
directlybysittingaschairman.
2. Iftheresarightsoffering,participateinit.(Usuallytheydoa
rightsofferingrelatedtospinoffs)
3. Ifhiscompaniesarebuyingalotofsharesback,theymight
beundervalued.Ibelievethattheymightbuysharesbackeven
thoughtheyarefairlyvaluediftheydonthaveanythingelsetoinvest
in.
4. Keepaneyeonethespinoffsandtrackingstocksthathis
companiesdo:forexampleLILA/LILAK

Succession
Maloneisalready74yearsold,sothatsafactorthathastobetakeninto
accountwhenthinkingaboutfuture.Seeinghimintheinterviewsheseems
healthyandlivelythough,sohesgotthatgoingonforhim.
HehasthoughtaboutsuccessionbygivingtwoofhisCEOs,FriesfromLiberty
GlobalandZaslavfromDiscoveryanoptiontopurchasehissupervotingclass
Bsharesineachcompany.
GregMaffei,whosatthehelmofLibertyMedia,LibertyInteractive
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(QVC&LVNTA)andChairmanningsomeothercompanieslikeStarz,hasnt
gottensuchdeal(yet?).IthinkthoughMalonehassaidthathismost/allofhis
shareswillgotoatrustandhellprobablygivevotingrightstopeoplehe
trusts.
Ibelievetheseguysknowhisplaybook,knowhowtooperate,havecapital
allocationskillsetc.sotheywillkeeponrespectinghislegacy.
Iamawareofthefactthattheremightbesomesortofregressiontothemean
dependingonhowmuchMaloneparticipatesinthecompanies,but
consideringhowlongrelationshipstheseguyshavehadwithhim,Ithinkthe
companieswillultimatelydofine.

Someresources/interviews
Malone2hourinterviewabouthispastin2001(ifyouvereadCable
Cowboy,theresnotmuchnewhere)
Niceinterviewfrom2010withMaloneaboutcable/mediaindustry
2012Maverickslecturemyfavoriteone,Iveprobablywatchedthis5
6times
CableCowboyMustreadbookifyouareinterestedinhim

Insights,tipsandmiscfromMalone
MostofthesenotesarefromtheMaverick2012lecture:
Ondiligence:
Themostimportantthingaboutthesedealsisplentyoftimefor
diligence
Healsomakesagoodpointhowtakingthetimetakesawayfromtheemotion,
enthusiasmwhenyouarebuildingthemodelsandexactlywhythedealgoing
towork.

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Theresnoeasyanswerondiligence.Youhavetofigureouttheother
guysbusinessasbestasyoucan.Youhavetousethebestprofessionals
youcanfindinareaswhereyourownexpertiseislacking.
Onacquisitions:
Whenyoubuyacompany,themostimportantthingistheretention
ofthepeoplewhocreatedthevaluethatyouarebuyingtokeep.
Thepeopleyouarebuyingoutmusthaveskininthegameatleastuntilgood
peoplecanbebroughtintolearnthebusiness.
Ontaxesandtaxefficiency:
Malonehasalmostperversepassioninavoidingtaxes.Forexample,attheir
headquartersthetaxgoupisthebiggestonethattheyhaveandinTCIdays
theirinternaltaxteammetmonthlytodetermineoptimaltaxstrategies.
[Government]isyourpartner,butyoudontwantthemtakingtheir
shareearly

Thegovernmentisyourpartnerforlife,theyjustdontgettocome
toallthemeetings.Thatstheonlyedgeyougot.

Leverageandtaxefficiencygohandinhand

Ifyouboughttheassetwithcashordebt,yougettostepupthe
asset
HegaveagoodexampleofSprint,wheretherewasastartupcompanyand
anotherprofitablecompany.Becausetheprofitablecompanysprofitswhere
partlytaxshelteredbythestartupslosses,theycouldputtheshelteredcash
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backintobusiness,whichresultedinaveryefficientcapitalstructure.
IfyoulookatQVCandLVNTAcapitalstructure,whereLVNTAshelterssome
ofQVCstaxesandgetspaidforit,youcanseethatitsveryefficient.
IntheMaverickslecturehetalksabouttaxessomeandyougetasensethat
hesbeengivingtaxavoidance/optimizationALOTofthought.

Finalwords
IntheenditwasahugepleasuretodothispostbecauseMaloneissucha
fascinatingcharacter.Ibelievethathesisoneofthebestinvestorsofourtime,
whichisinterestingconsideringthelackofvisibilitythathegetsingeneral.
AlmosteveryvalueinvestorstudiesBuffettinsomewayeitherdirectlyor
indirectly,butyouseealotlesspeoplestudyingMalone.Thisismostlikely
becausehedoesntwrite/educatelikeBuffettdoes,butthatdoesntmeanthat
therearentgreatlessonstobelearned.
Anyways,greatman,greatstory,greatinvestor.Whatmoreistheretosay?I
hopethestorycontinuesaslongaspossible.

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FredD
July21,2015

Greatpost,superboverview!
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ReplytoFred

jules
July21,2015

Thanks
Replytojules

Yair
July21,2015

Thankyouforadetailedpost.
WeallanticipateaninterestratewillrisebytheFED.So,howthoregardthisrise:
I.Malonewillfindithardtocuntinuetoleveragehisempire>hiscompeniesstock
priceswillnotoutpreform(comperetomarketaverage)
II.InthelastyearsMalonefulfillhisempirewithenoughcheapmoney,soonlyhis
competitors(andtherestofthemarketcompenies)willneedtoservehighcostdebt
>hiscompeniesstockpriceswilloutpreformcomperetothemarket
ReplytoYair

jules
July21,2015

Goodpoints,Ibelievethatthebestwaytotrytomeasuretheeffectsofinterest
ratesistoplayaroundwithratesinaspreadsheetandseehowtheyeffectthe
companies.CantreallysayhowmuchrateshavetoincreaseforMalones
companiestostarttounderperform.
Replytojules

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innerscorecard
July21,2015

ThiswastheclearestoverviewofMaloneandLibertythatIhaveread.AndIveread
afewoftheotherones(someofwhichyouhavealludedto).
Lookingforwardtoanyupdates/edits.
Replytoinnerscorecard

jules
July21,2015

Thanks
Replytojules

HiramPatel
July21,2015

Thisisafabulouspost.Ivebeenmeaningtodooneofthesetokeepmyown
investmentsinMaloneentitiesorganized.
DoyouthinkLibertyGlobalisfullyorovervalued?
ReplytoHiram

jules
July21,2015

Ithinkitmightbefairlyvaluedorslightlyundervalued.Ibelievetheyvegot
decentrunwaywithimprovingpenetrations+quadplays+wifiopportunitiesetc.
OtherpartsoftheempirelookmoreinterestingrightnowsoImpersonallynot
investinginLBTYKattheselevels.
Replytojules
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Anthony
July23,2015

DAMN!Wonderfulpost.Verycooltoseesomeoneputitalltogetherinonepost.
Keepupthegoodwork
ReplytoAnthony

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