Description

Thesis 

The long and painful saga of Tripadvisor (TRIP) and Liberty TripAdvisor (LTRP, LTRPA & LTRPB) as independent public companies may finally be coming to an end. 

LTRPA currently trades at $1.35/share or about 64% of NAV (w/TRIP at $27.32).  IF (and it’s a big if) the reported all-cash offer for the Tripadvisor complex comes to fruition, that gap will close, probably within a year.  My base case is that a deal would value TRIP between $30 and $35 per share for TRIP.  In that scenario, LTRPA will be worth between $2.80 and $4.00 (up 2.1x - 3.0x).  The leverage at LTRP is such that if multiple buyers show up and we get a number higher than $35, lollapaloolza. 

Details

LTPR has a 21% economic interest and a 57% voting interest in TRIP.  Greg Maffei has a 6% economic interest and a 38% voting interest in LTRP through his ownership of 97% ownership of LTRPB.  On February 12, 2024 TRIP released an 8K and LTRP and Maffei released 13Ds.  The disclosure is purposefully vague and I invite you to read it all for yourself but the main thrust is that someone has proposed buying LTRP and TRIP for cash (the “Potential Transaction”).  LTRP is engaging in discussions regarding the transaction and TRIP formed a special committee and hired an investment bank to evaluate options.  Reuters confirmed that LTRP “has been approached by at least one bidder” citing “people familiar with the matter.”  Both TRIP and LTRP acknowledged the process on their respective earnings calls last week.  In my experience the Liberty folks don’t formally announce a deal process unless there’s a high probability something will happen.  This feels real, I put the odds of a transaction at 65%. 

For background on TRIP, I recommend humboldt01’s Decmeber 2023 write-up.  I generally agree with the base case TRIP value of $30.00 per share and I think a strategic buyer should be willing to ascribe humboldt01’s upside value to Viator which gets to $35.00 per share.  Importantly, the TRIP thesis laid out in the write-up is working.  The new CEO is running Core Tripadvisor for cash and Core did $348 million in 2023 EBITDA.  Viator is a good to great experiences OTA business.  The global travel experiences industry is expected to reach $280 billion by 2025 and only around 30% of bookings are done online (vs. at least 60% for hotels and even higher for air).  Take rates on experiences are higher than take rates on hotels, both supply and demand are super fragmented and Viator is a dominant player in what is shaping up to be a global duopoly.  We’ve seen this story before with Booking and Expedia.  Viator grew 49% in 2023 and will do around $900 million in revenue (~$4.5 billion gross bookings volume) in 2024.  The business was EBITDA breakeven in 2023 and delivered 9% EBITDA margins in Q4.  It’s not hard to imagine this business growing very high teens for many years and ultimately achieving OTA like EBITDA margins.

Why Now?

LTRP has a big debt situation starting in March of 2025 and the fundamentals at TRIP (especially Viator) are working.  This whole thing has been a very public black eye for Greg Maffei for over a decade.  Notable is that it seems John Malone got out a long time ago—in December of 2014 Malone swapped his LTRPB (ten votes) shares for Maffei’s LTRPA (one vote) shares at a 5% premium when TRIP was trading at around $75/share.  Malone left the LTRP board in 2015 and it appears he sold his shares shortly thereafter.  My guess is that Malone wanted to sell when the valuation was healthy.  Maffei saw an opportunity to control his own sandbox and convinced himself the competitive challenges at TRIP could be managed; unfortunately, it turned out to be a bad bet.  I want to believe that Malone frequently reminds Maffei of his mistake, he deserves it. 

Through his LTPRB shares Maffei effectively controls LTRP and TRIP.  Currently he has two choices:  take the best deal he can get for the whole thing today or continue to suffer.  Suffering includes trying to refinance the LTRP debt stack, risking additional dilution and a multiyear effort to try to get a spin/IPO of Viator over the finish line all while trying to untangle the Gordian Knot that is TRIP/LTRP.  A sale solves the LTRP debt situation, solves the corporate mess and frees up the buyer to spin/IPO Viator when the time is right.  Maffei has $530 million in disclosed public holdings, TRIP/LTRP are $8mm or 2% of the total.  An exit now at some premium to current prices saves face and allows him to move on. 

One other tell that Maffei may be ready to sell: his 13D is explicit that the “Potential Transaction” doesn’t contemplate a premium for either the TRIPB or LTRPB supervoting shares.  Maybe this is just so Maffei can ask for it later but I think the better bet is that this situation is similar to WBD and SIRI/LSXM.  In both cases Malone didn’t require a control premium for his B shares because he wanted to get the deals done. 

LTRP NAV

For much of last year the LTRP NAV was negative, fortunately, today that isn’t the case.  It is useful to think of LTRP as a very long dated call option that has significant upside but could expire worthless.  Buyer beware. 

LTRP consolidates TRIP, so isolating the LTRP assets and liabilities when calculating the NAV takes some digging.  On the asset side, LTRP owns 29 million shares of TRIP, worth $800 million at current prices and has $23 million in cash.  Liabilities include the Series A Preferred Stock owned by Certares (current redemption value of $279 million), $330 million debentures exchangeable into TRIP and a variable prepaid forward with a carrying amount of $53 million.  The preferred has a feature that grants Certares the greater of the 8% dividend (including any unpaid amounts) or 80% of the upside in TRIP over $17.08, (the participating portion).  The preferred and the exchangeable are both due/puttable March of 2025. 

Below is my estimate of the LTRP NAV currently and at $30.00 and $35.00 per TRIP share.  Note that LTRPB has almost zero float outside of the Maffei shares and trades for an unexplainable $8.00/share.  In my valuation I take the 13D announcement at face value and assume all shares of TRIP and LTRP would go for the same dollar amount per share in a sale (no premiums for control). 

Who’s the buyer (and is he named Greg)?

My suspicion is that Certares, led by Greg O’Hara, is the stalking horse bid.  Certares manages $10bn, is focused on the travel industry and their ownership of the preferred gives them leverage in any negotiation.  It would be a big check for Certares but I would expect them to bring in capital partners similar to what they did with the Hertz bankruptcy and the American Express Global Business Travel buyout.  Maffei was explicitly asked about Certares on the LTRP earnings call and his non-answer didn’t suggest a different buyer.  If the Potential Transaction is coming from a strategic buyer, Booking (BKNG) seems the most logical.  Owning the leading experiences OTA makes perfect sense for BKNG.  CEO Glen Fogel is on the record saying experiences aren’t the priority for BKNG right now but what would you say if you were interested in owning the leading experiences OTA?  Regulatory approval could be an issue for BKNG and the recent eTraveli loss may make them gunshy.  Other private equity funds like Apollo or Silverlake could certainly take the project on.  Expedia, Trip.com (the old CTRP) and ABNB have all been mentioned as potential buyers in the past but there are reasons why they are unlikely to take this on right now. 

A final possibility is that Maffei is really behind the go private.  Last year TRIP and LTRP (and BATR) announced they were moving from Delaware to Nevada.  My concern at the time was that Greg Maffei and Greg O’Hara were going to team up and take LTRP private while TRIP was trading at a discount, something that would be easier to do in Nevada than it would in Delaware.  Minority shareholders have opposed the move to Nevada and recently the judge ruled that Liberty can move the domicile but that minority shareholders can still sue Liberty/Maffei for economic damages (if they can prove them) under Delaware’s entire fairness standard.  It’s unclear if TRIP/LTRP still plans to move forward with change of domicile.  Perhaps the difficulty in moving to Nevada is factoring into Maffei’s openness to selling. 

Risk/Reward/Probability

LTRP is complex, messy and could end badly.  Everyone should do their own work and come up with their own probabilities but I believe the risk/reward here is favorable.  The low end valuation of these cases leads to an expected value of $1.95/share, up 44% from current. 

Base case: $2.80 to $4.00 (65% probability)

A deal is announced in the next three to twelve months that values TRIP between $30.00 and $35.00. 

No deal case – Continue to Suffer: $0.50-$0.80 (25% probability)

They announce the deal is dead, LTRPA initially falls, maybe a lot.  Note that if TRIP is below $21.00 the LTRP NAV is technically zero.  In that scenario there is still option value at LTRP, last year when TRIP was below $21.00 LTRP mostly traded between $0.60 and $0.80/share.   Over time with no resolution of the corporate structure in sight I expect LTRPA would trade at around 60% of NAV (or $0.70 if TRIP settles out at $24.00).  As long as TRIP/Viator continue to work LTRP should be able to get a refinancing done but the counterparty would extract a pound of flesh.  Assuming TRIP at $24.00, 20% dilution at LTRP and 50% of NAV yields LTRPA at $0.50.  In this case the longer term opportunity to benefit from the potential at TRIP would still exist. 

No deal case – Death: $0 (10% probability)

No deal combined with softer consumer spending, a reversal of TRIP/Viator progress or tight capital markets leads to a massively dilutive/failed refinancing and LTRP shareholders are left with nothing.  

Risks

Over $600 million of net debt at LTRP.  The preferred is due in March 2025 and the exchangeable can also be put back at face in March 2025.  Refinancing LTRP could be a heavier lift than I anticipate.  Either way, dilution is likely and could be significant.

This is all smoke and mirrors, Maffei is trying to flush out a buyer to avoid having to slog through the refinancing.

This is all smoke and mirriors, Maffei uses the process to take LTRP private at an unfavorable price.

Maffei has unrealistic valuation expectations and walks from a reasonable deal.

My NAV math is wrong.  Any comments/corrections appreciated. 

I’m wrong on taxes.  Everything above assumes that TRIP and LTRP can be acquired for cash with minimal to no tax leakage at LTRP.  The whole reason LTRP exists is because Malone/Maffei are congenitally adverse to paying taxes.  LTRP is a very good example of what can go wrong when you let tax considerations wag the investment decision dog.  Nevertheless, LTRP was specifically created with the idea that down the road, TRIP would buy LTRP for shares similar to what happened at EXPE / Liberty Expedia in 2015, the planed SIRI/LSXMA combination and a number of other Liberty deals.  In the past Liberty has suggested that a TRIP/LTRP combination would most likely happen when there’s an acquisition of the whole business.  It would be beyond disappointing if they paid taxes twice.  If you are worried about taxes I’d recommend contacting Robert Willens.  He is the axe on these issues and I believe he is available via expert networks.  It’s possible he has already written it up for his service (if anyone has access and can share a high level view, much appreciated). 

For reference

TRIP 8K/press release:

https://www.sec.gov/Archives/edgar/data/1526520/000119312524032048/d765314dex991.htm

LTRP 13D:

https://www.sec.gov/Archives/edgar/data/1526520/000110465924014599/tm245281d1_sc13da.htm

Maffei  13D:

https://www.sec.gov/Archives/edgar/data/1099636/000110465924014605/tm245281d2_sc13da.htm

Reuters article (“People familiar with the matter”):

https://www.reuters.com/markets/deals/tripadvisor-forms-special-committee-evaluate-potential-deal-2024-02-12/

Disclaimer: the author had exposure to LTRPA and TRIP at the time of submission, 2/26/24.  The author has no obligation to update the information contained herein and may make investment decisions that are inconsistent with the views expressed in this presentation.  The author makes no representation or warranties as to the accuracy, completeness or timeliness of the information contained in this presentation.  The author expressly disclaims all liability for errors or omissions in, or the misuse or misinterpretation of, any information contained in this presentation.

Catalyst

Deal announcement.