I am also sure John and Greg would like to have a business that isn't in decline. Paying interest rather than taxes is fine, but the $2,900M revolver draw doesn't make that a priority.
As for Malone, I wrote prior I am curious how focused he is on QVC. TJ writes as he's some sentimental man, but he's a tycoon. He goes where the money goes, and right now and for a few years, the money has not been in QVC. John sold his B shares which gave up his 10:1 voting rights to Maffei. This transaction then had him sued by Qurate/QVCG and the result of that lawsuit is he was then kicked off the board of QVCG and couldn't run for reelection. Shortly after Greg Maffei "stepped down" from CEO of Liberty Media.
Perhaps one should not analyze them as if they're still playing with the same level of engagement? Or perhaps one shouldn't analyze them at all and focus on the business? I understand these are folks who have used leverage and understand how to maneuver, but it would seem the years of low reinvestment into these companies & secular changes is finally catching up to many of their businesses.
Another thought. John Malone has 30,421,522 shares of QVCGA ( ~608,430 post-split). All this ownership and the economic value as of yesterday is ~$2,610,166.00. Quick Google search tells me Malones net worth is $10,500,000,000.00 which would make QVC 0.02% of his worth. I am sure he's fighting hard for this at 84 years old.
DTL I have written about and no point further as the jewel is the OpCo with QVC and since I do not see an LME as likely nor do I see LITNA being touch in an LME it's wasted energy. The capital at QVC, Inc won't be used here so even if they do touch LITNA this is a LITNA problem.
TJ is of course correct on them cleaning the shares out in an LME is not going to happen. What he fails to see is in an LME they can of course be diluted severely. He continues to make the error that bond holders "hate their paper" and will look for any reason to sell. If they do take haircuts in an LME then they will also likely take equity with them. He does not understand distressed debt as well as he understands taxes. As I stated in a prior posts this notion bonds "hate their paper" is not accurate. Many funds are FORED to sell regardless if they like the paper or not. If the price hits a certain level then selling begets more selling. In distressed debt it just creates opportunity though because of this.
Bondholders will not need to wait for Q4 2026 for the company to file. The company needs capital in bankruptcy and if TJ thinks they are going to drain their capital another year and go in with nothing then so be it; again, he doesn't understand this arena. As for diluting bondholders prospects, yes their cash recovery was diluted but he assumes that's what they're all playing for. The company is either likely close to filing as I wrote or at latest Q1 after holidays at latest.
TJ also states the company can borrow BILLIONS more. Muahahaha! This requires the banks to give them more. Last I checked the banks are about protecting their capital and getting a return and they have $2,900M on loan against an EBITDA that went from $1,900M to $800-950M projections. I am sure they are willing to back the trucks up and give them more. That's exactly why 75% came together and hired Simpson Thatcher to represent them....banks are going to let them take on more of their money just to dilute bondholders as he writes. Again, he doesn't understand this market.
The game changes here and changed a bit ago. For distressed investors there are many who have modeled better than me that in a decline they can probably get value extraction as a new entity. Like I wrote just freeing up interest + parent dividend gives QVC, Inc +$100M to play with that is cash flow through. If they can cut costs further then that increases for the new equity owners. With a trim balance sheet + improved cash flows the company can either return value many ways. So TJ needs to understand the distressed market before he assumes their motives are just about "getting out".
As for the customers I just don't see it. The value per customer has shot up because revenue is going down and so are customer counts making each customer worth more. This isn't supporting the narrative he is telling.
And while the Tiktok business may be growing and compounding it's small potato's. One can be bullish that's fine but one also needs to apply context. At a $55.00 ATV this is currently a $31M business since April 6th:
Let's say it's a $100M business then that's 1.1% of the some $9,000M in revenue they did. Rounding error. While streaming/digital are growing and makeup 10% of revenue that leaves 90% still tied to linear cable which is in decline.
QVC, TJ, or whoever can be excited if they include the Tiktok customer counts into the customer counts but then that's marketing fluff. While Tiktok wasn't in their customer counts last Q, and likely streaming are not either, does it change? Last I checked their revenues were still in there and they declined 11% in the Q.
QVCGA is not where one should be putting their money and there is no margin of safety. He writes as if the math isn't needed and the narrative alone tells the story! This is exactly how people lose money. I wrote before, you do need quantitative and qualitative analysis.
Happy investing,
Sean |
