Daniel Loeb Comments on Liberty Global
Our initial interest in Liberty Global was spurred by multiple catalysts and favorable geographic tailwinds. Relative to the United States cable market, Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity. Before yearend, we expect catalysts in the stock to include the closing of the VMED deal, the initiation of a substantial buyback plan, and the unveiling of accretive wireless and B2B initiatives. The wireless market in Liberty's key Western European markets generates over $73 billion of annual revenue, presenting Liberty with the opportunity to redefine the MVNO market, leveraging a unique WiFi footprint, full back office and system control, and attractive quad play bundles. Liberty also appears poised to ramp up its B2B efforts, particularly in Germany.
We believe Liberty's strategic value as the primary alternative to the incumbent telecom operator's fixed infrastructure in its markets is overlooked. The growth of mobile broadband will put pressure on carrier spectrum allocations, enhancing the importance of WiFi offload and wireline backhaul infrastructure. In a mobile broadband world, having a strong ground game is more important than ever for wireless operators and European cable players are well‐positioned with dense, upgraded fiber infrastructure offering considerable headroom.
In our analysis, pro forma Liberty Global could generate more than $6 per share of free cash flow in fiscal 2014 when factoring in the considerable buyback plan announced along with the acquisition. Through VMED, we had the opportunity to create Liberty Global at slightly more than 10x FY2014 free cash flow per share, giving us the cheapest free cash flow multiple in European cable in a deal that will be free cash flow accretive and meaningfully de‐leveraging to Liberty. Despite the move in the shares following the VMED announcement, Liberty Global's relative value remains attractive, especially given the recent appreciation of its European cable peers and the interim appreciation of slower growth, mature cable operators in the United States. We believe the shares could trade toward 15x pro forma 2014 free cash flow per share and compound at ~20% per year following the closing.
Important Note to Our Investors and Unintended Recipients: Third Point's Quarterly Letters are designed to inform our investors about recent portfolio developments and provide our views of the market environment. Our letters are not investment recommendations for the general public. The legal disclaimer makes clear that we may trade in and out of positions discussed at any time and undertake no duty to update anyone, except to the extent we are required to make filings with the SEC. Investors who choose to take action based on our investment ideas do so at their own risk.
From Daniel Loeb’s first quarter 2013 investor letter.