DENALI INVESTORS, LLC

Columbia Business School

Special Situations Presentation
November 2014

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The Special Situation Cycle

Four Major M&A waves

Explosion
of
Greatness

Followed by Special Situation waves

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

Flexible search for opportunities

Special Situations Investing

What is special situations investing?

Answer:
Special situations is value investing with accountability

Simple Framework
Survival Investing
Survival = Value + Spec Sits + Options

Investing = Art + Craft + Science

Respect Micro + Macro + Cycles

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

Thesis: Buy pre spin, and get SpinCo for free

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

Management created a window of opportunity

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

Some History: Compounding at TCI

$1 invested at the beginning of the Malone era in 1973 was
worth over $900 by 1998.

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

Malones Alphabet Soup

LMCA / LMCB / LMCK (Liberty Media)
LBRDA / LBRDB / LBRDK (Liberty Broadband)
QVCA / QVCB (Liberty Interactive)
LVNTA / LVNTB (Liberty Ventures)
LTRPA / LTRPB (Liberty TripAdvisor)
LBTYA / LBTYB / LBTYK (Liberty Global)
STRZA / STRZB (Starz)
Numerous other current entities (DISCA / DISCB, ASCMA /
ASCMB, EXPE A/B, TRIP A/B)
Numerous other previous entities (TCI Ventures, TCI Intl,
LSTZA / LSTZB, LCAPA / LCAPB, LMDIA / LMDIB)

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

QVC, HSNI, CNR Assets

Recap

eCommerce Assets + Cash for Shares

(Reattribution)

LVNTA

Public Holdings, Solar Assets

LTRPA

Liberty TripAdvisor Holdings

LINTA

LINTA + LVNTA - 2012.08.10

LVNTA was spun off from LINTA August 10, 2012 at $40 per
share. In Dec 2013, LVNTA is $120 per share.
20 LINTA shares = 1 LVNTA share
3 LVNTA shares = 1 Right at a 20% discount to 20 day VWAP
Assets include Public Holdings (TRIP, EXPE, TWX, TWC, IILG,
TREE, AOL) + Cash + Tax adjustments
Liabilities include tax-advantaged exchangeable debt
No dates were given in any filings (to keep investors guessing)
Only approved spinoff on August 8, 2012, two days before
Parallel announcement of LMCA+STRZA spinoff (which shifts
attention from the LVNTA opportunity)

LVNTA + LTRPA - 2014.08.27

LVNTA Spinoff of LTRPA
LVNTA (Liberty Ventures) holds EXPE, IILG, TREE, TWC, TWX,
AOL, Solar, Cash, Certain Liabilities
LTRPA (Liberty TripAdvisor Holdings) holds 22% TRIP
common stake, 57% TRIP voting stake, BuySeasons, Cash,
Certain Liabilities
1 LTRPA Share = 1 LVNTA Share
Separation to highlight value of LTRPA and LVNTA assets
Highlight hidden assets
Address significant sum of the parts discount

Live Situation - QVCA

Liberty Interactive (QVCA)
Reattribution
of Liberty Ventures (LVNTA)

+
LVNTA
~$5

LINTA = QVCA + Reattribution - 2014.10.20

LINTA becomes QVCA + Reattribution
QVCA (QVC Group) to hold QVC related assets, HSNI stake, CNR
stake, Cash, Certain Liabilities
eCommerce assets (such as Provide Commerce, FTD stake,
Backcountry.com, Bodybuilding.com, Evite.com), Cash, Certain
Liabilities
1 QVCA Share = 1 LINTA Share
eCommerce assets ($1.5b) + $1b cash = 67m LVNTA shares
Separation to highlight value of QVCA and eCommerce assets
Highlight growth, margin expansion, hidden assets
Continued accretive share buybacks

Live Situation - LMCA

Liberty Media (LMCA) Spinoff of
Liberty Broadband (LBRDA)

2
+ LBRDA
~$13

LMCA + LBRDA - 2014.11.05

LMCA spinoff of LBRDA
LMCA (Liberty Media) holds SIRI, LYV, other assets
LBRDA (Liberty Broadband) holds CHTR, TWC, other assets
1 LMCA share = 0.25 LBRDA share
5 LBRDA shares = 1 Right to buy 1 LBRDA share at 20%
discount
Separation to highlight value of LMCA and LBRDA assets
Allow each entity to pursue appropriate value creation path

Live Situation - LBTYA

Liberty Global (LBTYA)
Spinoff of
Liberty LatAm (LILA)

LBTYA + LILA - Q1 2015

LBTYA spinoff of LILA
LBTYA (Liberty Global) holds Europe cable, UK cable,
other assets
LILA (Liberty LatAm) holds Chile cable, Puerto Rico
cable, other assets
1 LBTYA share = TBD LILA share
Separation to highlight value of LILA assets within
LBTYA
Both LBTYA and LILA will become tracking stocks
Allow each entity to pursue appropriate value creation
path

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

Live Situation - HTZ

Hertz (HTZ) Spinoff of
Equipment Rental (HERC)

Live Situation - HTZ

Many material catalysts

Forced Selling - Was a high profile HF name. Cascade of selling

created an end of year vacuum. Opportunity for those funds
with staying power

Price - this month, it became interesting at $20, down 35%

Management - New CEO search (last one was forced out)
Activists - Icahn has three board members (they are on the
CEO search committee)
Buybacks - Near term buyback target of 10% to 20%. Greater
purchase impact at $20 vs at $30
Spinoff - HERC spinoff planned for Q1 2015
Oligopoly - Recently structured oligopoly with rationalized
pricing (forward view vs rear view)
NOLs - Ability to shelter income
Audit - Resolution will remove overhang and clear path to
effectuate all hard catalysts

Case Study #4
What do you get when the following get together?
No Activists
Management
Insurance

Live Situation - GNW

Genworth (GNW)
Blow up

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

Inefficiency built into the system

Valuation / Cap Structure
Management
Options / Hedges
The Ratio
Downside protection

Process vs. Probability vs. Outcome

Survive
SS

The End