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Denali Investors - Columbia Business School Presentation 2014.11.11 - Final - Public
Denali Investors - Columbia Business School Presentation 2014.11.11 - Final - Public
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Explosion
of
Greatness
Generals + Workouts
Generals
Undervalued stocks
Neglected
Long time horizon
Favorable risk/reward
Shorts
Flawed business,
management
Unrealistic
expectations
Negative catalysts
Workouts
Non-recurring;
Catalyst
Internal/External
Mergers
Tender Offers
Spin-offs
Capital Structure
Arbitrage
Reorganizations
Liquidations
Bankruptcies
Simple Framework
Survival Investing
Survival = Value + Spec Sits + Options
Case Study #1
What do you get when the following get together?
Sandbagging management
Simple arithmetic
A catalyst
Case Study #1
Kimberly Clark (ticker KMB) Spinoff of
Halyard Health (ticker HYH)
New KMB
Personal Care
Consumer Tissue
K-C Professional
HYH
S&IP
Medical Devices
Spinoff Background
Summer 2014 - KMB was trading at $110+ per share
KMB expected to close the spin in Q4 2014
Summer earnings call surprise
+ HYH
~$5
2
1
KMB + HYH
KMB summer earnings surprise = Management
incentives
Pre spin, KMB was trading at significant discount to
comps
Post spin, New KMB trading at a significant discount
New KMB dividend will remain in line
New KMB 2014E EPS ~$6 (ex HYH) vs 2014E EPS ~$6.10
(with HYH, pre spin)
New KMB buyback program
New KMB restructuring program
HYH 2/3 S&IP and 1/3 Medical Devices
HYH segment margins
Valuation - KMB
Case Study #2
What do you get when the following get together?
Owner
Operator
Time
Malone Complex
A Brief History
QVCA
DISCA
LINTA
LVNTA
LINTA
Liberty
Media
LVNTA
AT&T
Liberty
Media
LMCA
LCAPA
TCI
LTRPA
Liberty
Media
LMCA
LBRDA
LMDIA
LSTZA
STRZA
DTV
LBTYA
LBTYA
LILA
Entity Summary
LMCA / LMCB / LMCK (Liberty Media) - Holds SIRI, LYV, other
assets
LBRDA / LBRDB / LBRDK (Liberty Broadband) - Holds CHTR,
TWC, other assets
QVCA / QVCB (Liberty Interactive, Tracking stock) - Holds QVC,
HSNI, other assets
LVNTA / LVNTB (Liberty Ventures, Tracking stock) - Holds EXPE,
TWC, exchangeable debt, other assets, the public hedge fund
LTRPA / LTRPB (Liberty Trip Advisor Holdings) - Holds TRIP, Buy
Seasons
LBTYA / LBTYB / LBTYK (Liberty Global) - International cable
consolidation
STRZA / STRZB (Starz) - Content entity spinoff from LMCA
Spinoffs - 2014
QVCA
Recap
LVNTA
LTRPA
LINTA
+
LVNTA
~$5
2
+ LBRDA
~$13
LBTYA
European cable provider, one of largest in the world
Core markets UK, Germany, Belgium, Switzerland, and
the Netherlands
Horizontal and vertical acquisitions
Benefit of substantial NOLs
Levered equity shrink playbook
No dividend vs peers
New LBTYA will be structured as a tracking stock
Creation of entity to replicate strategy for Latin American
markets
LILA
Upon separation, LILA will be structured as a tracking
stock
LILA will create a pure play regional entity
LILA will represent operations in Latin America and the
Caribbean (LiLAC Group)
Initially, LILA will have attributed 100% interests in VTR
GlobalCom and VTR Wireless, and 60% interest in Liberty
Cablevision of Puerto Rico
Case Study #3
What do you get when the following get together?
Activists
Management
Cars
Case Study #4
What do you get when the following get together?
No Activists
Management
Insurance
GNW
Non core segment was previously the source of the
discount
Now the core segment is the source of the discount
Recent management missteps create opportunity
Stub value - non core worth more than current stock
price
Path to unlocking value
Recall early conversations
Review
Intersection of Value + Spec Sits + Hedges
Survive
SS
The End