Yet Another Value Podcast - First Foundation's Eric Speron on the Lagardere SA situation: spin out, publishing, travel retail

Episode Date: November 23, 2024

Eric Speron, Managing Director of Equities, PM of First Foundation Total Return (FBBYX) at First Foundation, Inc., joins the podcast to share his thesis on Lagardere SA (MMB.PA), an international group with operations in more than 40 countries worldwide. The Group focuses on three divisions: Lagardère Publishing (Books, E-Books, Partworks, Stationery, Board Games and Mobile Games), Lagardère Travel Retail (Travel Essentials, Duty Free & Fashion and Dining) and Lagardère News (Le Journal du Dimanche, JDNews and the Elle brand licence). The Group’s operating assets also include Lagardère Live Entertainment and Lagardère Paris Racing. Eric Speron's Linkedin: https://www.linkedin.com/in/eric-speron-cfa-09925a3/ Chapters: [0:00] Introduction + Episode sponsor: Daloopa [2:31] What is Lagardere SA (MMB.PA) and why is it so interesting to Eric [6:12] What is Eric seeing with Lagardere SA (MMB.PA) that the market is missing [8:54] Vivendi's spin off of ownership stake in Lagardere in December [13:21] Publishing business and growth catalysts [28:25] Travel retail business and the opportunity here [36:28] What does the sum of the parts look like; valuation question [41:07] How does Eric think the spin off will play out [47:44] Final thoughts Today's sponsor: Daloopa Hey there, fundamental analysts - Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding? Let’s talk about something that could transform your workflow—Daloopa. Daloopa delivers perfect historicals for thousands of public companies. That means every KPI, operating data, financial metric, adjustment, and guidance—all at your fingertips. And here’s the best part: Daloopa updates your models in near real-time, which is especially important during earnings season, tailored to your modeling format and style. Imagine never having to update your models again. With Daloopa, you can reclaim your time and focus on what really matters—analysis and research. Want to learn more? Create a FREE account at Daloopa.com/YAV

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With DeLUPA, you can re-clean your time and focus on what really matters, analysis and research. Want to learn more? Create a free account at dilupa.com slash y-A-V. That's Delupa, D-A-L-O-O-O-P-A dot com slash Y-A-Vee. All right, hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, review, wherever you're watching or listening to it. With me today, I'm happy to have on, Eric Sparren.

Eric is a managing director at First Foundation. Eric, how's it going? Yeah, hey, I'm just, it's going great. Thanks for having me on. You know, I wanted just first shout out to you. Yeah, I think you do a great job. I love this podcast. You know, I told you about Charlie Munger.

You got one great idea out of Barron's in 50 years. I'm sure your listeners get more than one, but I got my one. And, you know, I was very appreciative of the author. I'd let him know, but I want to let you know and share it publicly that I think you do a great job. Well, I really appreciate that. I'm starting on my work for my 2025 vision for my whole empire and you had told me that

I listened to the podcast, I listen to I'm just going to assume you listen to all 278 but you got the one idea and that's what you were looking you know that was the hope and one of my visions for 2025 I've got that quote out there. I'm like somebody told me this and I want that to be like

the podcasts are such high quality. You listen to them you enjoy them and then hopefully one out of 200 strikes you or one out of 50 whatever it is. But anyways, we've got a lot to talk about today before we get there Quick disclaimer to mind everyone. Nothing on that this podcast is investing advice. That's always true, but I'll say particularly true today because we're going to be talking about an international stock. It trades in France. And it is quite, it is a controlled company. It is controlled by Vendie. Vendi owns about two-thirds of the stock. I think it's particularly timely now because Venddi's about a weird little spin-off. We'll talk about all that. But the reason I mention is, please remember, I just mentioned international and illiquid slash controlled. So this carries a little bit of extra risk versus the normal stuff we talk about. So please do your own work, do your own diligence, consults, financial advisor, all that. Eric, the company we wanted to talk about today is La Jardier.

Did I say it right? Lagardeer, but either one of them. I even asked you before and I said it the exact same way I asked. But when you read it, it's hard to pronounce. The ticker is MMB. It trades in France. Really interesting company. Lots of kind of interesting things coming up before your end, but I'll pause there.

I've talked a lot already and just toss it over to you. What is Lagardeerre and why is it so? interesting. Yeah, thanks, Andrew. And just quick disclaimer from me, my mutual fund has a big position here. We're a top 10 owner, the tickers SBBYX. You know, please consult my holdings, but do your own work. Yeah, McArder is really interesting. You know, for us, investing is always a function of downside. We look up before we look down. We think there's some pretty good truncated downside here. We don't think, you know, you're set to lose a lot of money, and that's a great place to start because every other outcome is good.

you know, kind of, I think the most succinct way to start is that these are two pretty good businesses under the hood. One is travel retail, one is publishing, but what you have is kind of a hung deal. So a few years ago, Boleri began the process of Vendee fame, Vincent Bolerai, of buying a stake here. He basically spent a billion seven, and now, you know, he's, you know, he's a big. got him a 60% stake. He spent another $250 million,

got an additional 7% to get to the 2.30, as you mentioned. And he did it by tendering for the stock agreements with shareholders, but not every shareholder went. And the shareholders that stayed behind are some of the astutist shareholders there are. It's the Qatarian Investment Authority,

and the third richest gentleman in the world, Bernard Arnault, from LVMH, and his family holding company in Gase. So they haven't sold. On top of that, there is a public stuff. So if we were talking in April, I would have told you that 7% of the shares float. LaGuardair has been buying every day. And when I say every day, I mean every day X blackout periods, but about 25% of the daily volume has been there in Garter Air. They posted every Monday on their website.

And they've repurchased 1% of the float since April. So why are they doing it? I think they're ready to take another pass. The stock closed last night at 20 and a half. They bid 25 LVMH and Qatar has said no The business is developing both organically and inorganically I think the intrinsic value is growing And then of course there will come that one day When the discount to intrinsic value will close

But I think the businesses are very interesting I think the timing is good We can talk about what December will bring But I also think the context of what's gone on the past few years that's led us up to this point is interesting because Bollary has been bidding very feverishly, sold, you know, his two cornerstone assets, they were transportation assets, he netted $12 billion, he's got $6 billion euro walking around money. You know, the way Bollary and Alcan have distinguished themselves, you know, Alcan from Exor and

Bolleray here, isn't by these family hold codes closing the discount to intrinsic value. It's always been growing the intrinsic value. I think this is one of their growth vehicles alongside UMG. And I think participating alongside the growth of that intrinsic value, as well as some narrowing of the discount over time, is what gives the crux of the rising price of the business and what makes it so interesting. Cool.

There's a lot there I want to address, but let me start with the question I try to ask everyone as the first question. The market is a competitive place, right? What are you seeing that you think the market is missing here that makes this kind of a risk-adjusted alpha opportunity. All right. Cut me off when I go too long, Andrew, because there's a lot. You know, this business trades at 10 times earnings.

They pay a 3.2% divin yield. That's in excess of the European investment grade credit, which is about 2.9. They buy back shares. They've been, you know, today they announce an acquisition. They've been acquisitive and they've paid down debt. So this is kind of an odd doc that 6%. sits in the market. But there's a whole bunch of lessons. And let's just go back to Charlie Munger. You know, Munger likes to say or liked to say, a young man knows the rules, an old man

knows the exceptions. You know, this, in Bollary Land, this is dog years for me. I've been doing this. Not quite as much as Orbiter was, who's on your podcast since 2014, but maybe 2016 or 2017. And there's a lot of rules here that keep people away. Number one, outside of U.S. Okay, that's a problem. We know, you know, we know how cheap OUS stocks are. Well, I think that, you know, is basically called for, but this is global growth attached. So that is, you know, more interesting than something that's just European. There's something that says you won't overrun Amazon and that's what's going on in publishing. We can talk about that, but, you know, I think these guys are capable of potentially upending that. You know, there's another rule of the road that says, you know, you don't invest, you know, in these small situations because you might get squeezed out. Well, in this case, I think you won't get squeezed out because Qatar, as well as potentially LVMH, has no interest in tendering. They haven't shown interest in tendering. They were offered, you know, at one point, they offered two different tenders, and they also offered a free put at $25. Qatar actually

said we don't even want the put because we're not interested in selling. So I think there's a whole bunch of rules that, you know, have exceptions to them that this one might qualify for. But no matter what, you know, the thing I think that the market's kind of missing is this could be a very low downside situation, but you might, in fact, you know, get equity upside. And, you know, we can talk about the intrinsic values, but I think, you know, you're talking 60, 70 percent north of these levels. And they're going to try to grow that intrinsic value on you. And I don't think the market right now is paying attention. let's talk about it i want to talk about both businesses particularly travel retail which i find

to be a fascinating business but before we get there there's the event coming up in december and i'll give a quick overview i think it's what's going to attract a lot of people to the name and i think it's why it's particularly timely to talk about this little stub because there might be a way to access it but i'll give an overview and i'd love you to correct me if i'm wrong and dive into it in in december vende which is boy one of their uh you know one of their major holdings they're doing a breakup to try to address their conglomerate discount. And one of the ways they're doing the breakup is they're going to spin off their stake in La Jardier, plus a small company called Prisma. They're going to spin it off into, I think it's the Lewis Hatch Group is what it's going to be called. And so that's

basically going to be, if you think about Liberty with like Liberty Live or Liberty Sirius, it's kind of going to be similar to that, you know, Liberty Series with Sirius, Liberty Live with LabNation. You've got mainly an owning in this plus a little bit of something else. And I think that's really interesting from an event perspective because all of a sudden, you know, if this was too liquid for you, there's going to be a very large kind of liquid way to play it. There could be spin-off dynamics and everything. But I think that presents a lot of interesting. Now you've got a company before was kind of a stub. Now it's kind of a standalone. A lot of interesting things about that. So I gave an overview. I'd love to toss to you and you can

correct anything I said that's wrong or talk about all the interesting angles associated with that. Yeah, I think you're basically right, Andrew. You know, there's a couple other parts, so there's going to be four parts being spun out of the vending. It's going to break into four. You know, the three spin-off assets, those being Canal, Havas, and Lagardeer. You know, two of them will have no debt. Legardeer will have debt. Two of the three will have an analyst day.

Legardeer is not getting an analyst day. There was also a webcast presentation. There's a road show. They're taking Canal Plus even to the United States, which is Sacrosanx for these guys. So everybody else is getting the royal treatment. There was actually two price targets in the financial times. You assume that they were planted by bankers. They gave a $7.5 billion target on Canal.

They gave a $3.7 billion target in Havas. Havas. You know, got a payout ratio, very healthy, 40%. Canal, they're going to get an acquisition where they're doubling their subscribers. members through multi-choice, regard it as getting none of those. So you have to ask yourself why. And I think the reason is behind that is this is the asset that Bolivore wants. And we're not, you know, when you talk to them and ask them, hey, is there going to be anything,

you know, on this spun out entity, they said maybe in 25, maybe in 26. And, you know, is it an exciting time for the business? Absolutely. This is their biggest of the three by revenue businesses. This is probably the one with the most margin opportunity. But this one's not getting that treatment. They will not talk about it. We're not going to see much about it.

But, yeah, like you said, less than a month from now, it's going to be trading on the public markets. And, okay, what will be trading? It is a company called Louise Hachet. It's a Hatchett book business is what it's named for. That's a guy that opened a bookshop in 1826. That's the reason these companies started to take. together. You know, they're selling books, publishing books. I mean, that was a business.

Clearly, there was a good reason for those things to be together a long time ago, but that's not the case today. So, yeah, I think you're basically right on the event set up. Wanted to make that, there is a different, you know, twist here where we're going to have a liberty serious, serious situation. You know, the liberty serious, in fact, we'll have the more liquid you had that right. But maybe that's a good time to stop and start talking about the businesses, or I can keep going in another direction. No, no, that's great. Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding?

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Want to learn more? Create a free account at dilupa.com slash Y-A-V. That's Delupa, D-A-L-O-O-O-P-A dot com slash Y-A-V. Let's talk about the businesses. So they do own a bunch of stuff. You know, they have a radio station. They've got some other stuff. But really, we are talking about the businesses here.

There's two businesses that you're thinking about. The first is their book publishing business. their book publishing business, and their second is their travel retail business. So I'd love to sevens first. And first I've got to say, ignoring the interesting event set up, ignoring the value, you knew that this was going to be an interesting company to me, because as I'm looking up, what do they have? They have book publishing, and what do they publish?

They publish Fourth Wing. Did you read Fourth Wing? I didn't, but I knew you'd like it. They published Fourth Wing, which I read the first one, and it was a little too smutty for me, but it was nice to get some of my friends reading the, they published board games. You know, they've published fantasy books just right up my alley. The Vino Velo and Travel Retail.

I know I've eaten at the one out in Newark a few times. So it's book publishing and travel retail. I find both of them fascinating. I think you might be a little bit more interesting in publishing. So why don't we start with publishing? Both of them, it's almost a 50-50 split in terms of both profits and value for both of them. So these are the two assets people need, folks. Why don't we start with book publishing, broad overviews,

and then we can do travel retail after that. Yeah, absolutely. And I think you framed that well, too. So I am a little bit more interested in book publishing, but I think there's a lot to be said and overlaps in a lot of places. So, you know, book publishing, very sleepy business. GDP, grower historically, you know, nothing to get out of bed for. Also, though, you know, this is one of the questions, you know,

they came out on Twitter, you know, what makes you interested? You know, I think there's something to the fact that if you were to write down businesses that will be around in a hundred years, you know, public businesses, you know, railroad, defense. you know, but then I would go like Universal Music, Disney, you know, and I would go here. I think, you know, literary rights are one of those businesses that you could put a hundred-year bond out and have some confidence in. So I do like the duration, really great returns, 23% pre-tax RIC, but not much growth. I think that might change, and I want to talk about it, but, you know, one of the articles I sent you, which is great for anyone looking at this sector, there was an article done in medium, and what it was was a 20-page article that summarized

a 100-page book called The Trial. It was the trial that was the U.S. government trying to stop Penguin Random House from acquiring Simon & Schuster. You know, awesome article, page through the book, but, you know, some of the traits closer in that article. You know, one of the ones, you know, I'm going to pick out, too, Andrew, because I think it really helps sets the stage for what this is. So, you know, that book, which if you haven't, gone to a baby shower and given a book,

then you've been doing it wrong. But that book, The Very Hungry Caterpillar, has been on the bestseller list every week for 19 years. My kid loves, I've got a one-year-old, loves that book. And just last night, the Very Hungry Catapillar, there's another one, the very busy spider. Just last night, she put out the very busy spider. So I just wanted people to know what Sylvie's reading these days. Yeah, and I think it speaks to the duration here, right? There's another one that says, you know, we, you know, a lot of your listeners know

music and, you know, clearly I have, you know, some study in music as well. You know, the head of Penguin Random House said of a hundred books, how many are profitable? And he said two. So two-ish books cover the entirety of everything else. You go to music, you know, that bell curve isn't anywhere near that narrow. So you have a book that's basically like venture capital with 98% losers. and then you have books that can be around for decades and decades. You know, I was a fan of Roll Doll growing up.

You wrote them a letter in fourth grade. My kids are fans of Roll Dolls. We read the books. We watch the movies, right? I mean, there are some of those things that are just transcendent. My daughter, you know, on the way to her practices, you know, we listen to the outsiders. You know, I listen to the, I read the outsiders growing up. So there's a lot of duration in this business.

I don't think that can be understated, and that is why I have the hots for this business. But then there's something more, which is audiobooks. And Andrew, I don't know if you go that route, but we do. I already feel that the cat out of the bag with the outsiders. But that is growing late gangbusters. So audiobooks has been growing 14% a year for the past half decade before Spotify. And anybody who's made real money on Spotify knows what's been driving it. It's audiobooks.

Spotify's margins, as you probably audience all well knows, were 25% in 18, 19, 20, basically 22 and 23. 21, they were a little higher, but they ballooned to 33 now. And if you were to ask the sell size, give me a single reason. They'll say audiobooks. And what's going on is, you know, and this was in the last earnings call, but in audiobooks, you know, you're out there with Daniel Eck telling you that people have found using audiobooks on their premium subscribers

gets them to listen to five more hours a day. They went from $150,000 book catalog to $300. Unlike podcasts, there's no huge contract to sign with Joe Rogan. Someone's listening to Gone with the Wind, that pulls down. It's really nice from an operating leverage standpoint. So this is goosing Spotify's numbers. We are getting big lifts and profitability. You look at 30% growth in HarperCollins and profits in the quarter.

You look at hatchet books, which is the division here. 77% growth in the half year. This is catalog business. This is free money. This is what's been called the music, the digital dividend. This is the backdrop, I think, for what, you know, on top of, you know,

ebooks and digital, you know, you have something else, which is you're getting a lot more books into the theater and those being more important than they've ever been before as well as video games, honestly. So there is been a digital dividend here.

It was just a decade later than music. And I think that set up is quite interesting. Go ahead. That is fantastic, but could I just push back a little bit, right? Yeah. So one of the things with, you mentioned, this is a, the way you're framing it is almost, hey, this is UMG 10 years ago, right, where people are worried, oh, I'm being a little fast and loose with it, but people are worried, oh, music's going away.

And then it gets basically the streaming bump, right? And all of a sudden it's, and I do hear that. But the thing with streaming is like, A, if I have Spotify, Spotify needs to have all the music, right? If they lose one big catalog, I might switch to Apple Music the next day or Amazon, right? If they lose my Taylor Swift, whereas with books, you know, I don't know, Spotify does not need to have all the books. If I'm a hard, anyone who's listened to this knows how hardcore of a Brandon Sanderson, I'm a fan I am. Maybe I would switch for Brandon Sanderson. But look, for most readers, if they look and they look up fantasy books and says, oh, they don't have Game of Thrones,

but they do have the wheel of time. Cool. Right. Like, and part of that is, a song is three minutes and an audio book is, you know, 30 hours, right? So I don't know if there's that same necessity there. And then the other thing I wanted to jump on and pushback is, and because a song is three minutes, like you might listen to 100 songs from the 80s while you run a marathon or whatever, right? Because I said 100 songs.

10 songs from the 80s while you do a 30-minute workout versus a book, you can only do one, right, during over 10 workouts. So I do know there are some. big books from the 80s that do definitely still have life, but I think most books fade off a lot faster than song. So I guess you're framing this as past 10 years, and I do see that, but I'd kind of push back like the dynamics of the books, the catalog well valuable, and certainly a lot more IP opportunity as going forward as they're turning these to movies. Like, I'm not sure if the bat catalog is as quite as solid as the music is how I'm trying to frame it. No, Andrew, you're

totally right. The repeatability of music, you know, you could go on and with why music's better but UMG is a 45 billion market cap and publishing here probably worth three billion right maybe three and a half to four so it's it's a much smaller you know opportunity but i do think the duration of cash flow point matters right i do think when you look at what's why spotify is driving it um you know they're doing it because it helps them lower their cost of goods that's the reason their margins are exploding so yeah no totally agree you don't have the same bargaining power you know for that taylor swift brings to music as uh you know the author of the outsiders but if there are if you're already paying 999 and you know

you want to spend some of your your subscription dollar cost of goods sold on that book well that's really accretive to spotify and if you look this morning amazon which has not been willing to compromise in audible is adding amazon to um the Amazon, the audible subscription is being added to Amazon. And why is that Amazon music? It's because Spotify is taking share. And I think you, I think you realize, okay, look, yeah, it isn't going to be music. I think that's right on.

But I think the offset is how valuable it is for these distributors to not have to pay 55 cents of every gross margin dollar out. In music, for, you know, again, going back to 10 years ago, 10 years ago, a lot of people were saying, hey, Spotify's going to cut out the middleman. They're going to cut out the music labels, and there's going to be this huge wave of self-publishing. You haven't really seen that in music, right? Most people still go with the labels. Now, again, I do think part of that is because the music labels have such a hold on the back catalog.

And I don't know if back catalogs is important in books, so people couldn't remember that. But in books, I'm curious right now, I read some authors who started self-published. They started on Patreon or Rainbow Road. And then all of them eventually did get picked up by major publishers. So maybe I'm asking a leading softball question. Are you at all worried about that self-publishing trend as, you know, it gets easier to publishes online? Amazon's got the self-publishing, or do you think it's very similar to the music analogy where, yeah, you can self-publish, but if you want to be a big guy, you kind of got to go with one of the big people and, you know, get that marketing support, get all of that behind you? Well, it's interesting.

So today's kind of an informed day to ask that question. Barnes & Noble sold out of their publishing asset this morning to hatch it. So Barnes and Noble's tried to do it. Amazon's on its own plane, but Amazon right now, e-commerce right now drives 50% of book sales. Amazon is a total of publishing is 25% of all publishing dollars. So Amazon is the king in the castle, but you might remember, and if not, maybe your readers don't,

if you were to go back historically, you know, Apple was 35% of global music distribution at its peak. So Amazon's actually smaller than, Apple was back in the day. So, and how did that break up? Lucian Grange, who runs UMG, who works for Vincent Bolleret, acquired EMI, and then he greenlit

Daniel Lack and Spotify. A lot of those same players are here. So, yeah, I don't disagree, you know, what we're looking at now, the earnings potential, you know, is unlike music. It is, you know, a much less. But, you know, what could it be?

I don't think we know. I think when you look at it today, and I think that's why, you know, Daniel X going this route, that's why Amazon's following in, I think Amazon's worried that the 25% of sales that they do, because, you know, look, there is no Kindle competitor. It's all the Kindle. There was no audio competitor, though, very seriously. Will there ever be a publishing competitor? You know, I don't know if this business is big enough. But if, and we can talk inorganic, Bolery made an offer on Simon & Schuster, and they were willing to offer a hefty price. There are some things that Dolores learned that I think, you know, on the inorganic side, could let them, you know, do more and lower the concentration of distribution to Amazon. And, yeah, the past has no prologs, you know, clearly. But, you know, they've won before. And could they win again? I don't think you're paying for that.

And I think that's really what's intriguing. So, yes, that's how I'd answer it. Just the other thing on books, like music, if you are a K-pop band, you will listen. I do not speak Korean. I'm not a K-pop fan. That's fine. Like everybody but I've listened to a K-Bop song. You listen to a K-Bak song and they sing it in the original Korean, right? And when someone in Japan listens to a Taylor-Sos song, they don't listen to a translated version. They listen to it in English. And the reason I say that is books are different, right? Books, it is a global market. It costs almost nothing to translate. But if you want your

book and you write in English, if you want it to be a global phenomenon, you've got to have it translated in Japanese, you've got to have it translated to Korean, Chinese, wherever you want it to sell. And the reason I say that is, you know, your label in music does only marketing, whereas your label in books, actually there's a lot more that they kind of do. You've got that. You've got, they probably need to handle if you're going to sell the rights for a TV series or movies deal. And by the way, if you're self-publishing, you're either going to get run over or not have access to that. And I, you know, again, that's just something that a music label really can't offer you. So I can see a lot of ways where a music label, or sorry, a book label, book publisher

is actually offering a lot more services than a lot more service, a lot more reason to exist than a music label. Do you want to talk about anything else here or do you want to kind of move over to travel retail? No, I mean, I think we covered it. I mean, I do think, um, there, let me make one more point. Um, you know, when Boleroy started building his position, you know, and this is global bookstores, but global bookstore, but global bookstore, two decades ago, over 12,000. By 2018, that was a 1999 number. By 2018, they got down to 6,000. I think a lot of the global bookstores that have been circling the drain went out. And clearly in COVID, they did. Over the past half decade, though, global books, you know,

a number of bookstores have actually been growing, 50 basis points a year. And I think it's because the weekends have been flushed. So there was this, you know, kind of delay. When did we lose global music stores, probably in the mid-90s, you know, we lost global bookstores over the past two decades. I do think there's a digital dividend, but then the, you know, the bricks and mortar angle, I think, tells you know, that a lot of these audiences, you know, are captured, you know, and they're captured on, you know, Super Saturday after, you know, the Small Town Saturday after Thanksgiving weekend. You know, there's a lot of people that love their local bookstore, and that has kind of gone away in music. I think not having that leak out.

you know, in addition, it's something else that, you know, can give publishing a little bit of a top line. So anyway, yeah, I want to make the point about analog books and bricks and mortar books. Perfect. Let's turn, we'll come back and do like a quick sum of the parts valuation to wrap up at the end. But why don't we turn quickly to travel retail? And I say travel retail and couldn't mean anything. So I'll just turn to over to you. What is travel retail? And I have some really interesting questions to ask you on this. Sure. And I'll try to answer those. I don't. know if I know that business quite as well, you know, and I think that's part of the opportunity.

Like I said, there was a reason that travel, retail, and publishing, you know, came together at the start, but for a long time, they didn't need to be under the same umbrella. So this is a lot bigger than you would think. If you were to go to International Airport, you've seen those relay stores. Those are your bookstores. You know, you mentioned Vino Volvo. They have 35 of those stores. If you go, you know, I know you grew up, you know, in the New Orleans area.

If you go to the southeast, you'll see those Paradise Lagarde Air stores. They have a thousand of those. So today, travel retail is a whole lot different than the way this grew up. NBC Today, bookstands, the Amazon just locked out, Chick-fil-A. They have 70 different retail brands, you know, relay being, you know, really important to them. And there are some in train stations as well. But they have 5,000 global stores, and, you know, that setup is really important. interesting. So there's one publicly traded competitor that kind of does it all, a Volta in Switzerland.

They just merged with Auto Grill, which is a Benison family company. But there's, you know, there are smaller, you know, outfits. There's two or three others that kind of matter, but they're kind of less well-developed, less diversified. But clearly, it's kind of a weird business. So if you listen to, you know, a podcast talking to, someone and interviewing someone who does airport retail, what they'll tell you their business model is, is to offer street plus 15 pricing that they share with the airport. So bottle of water, a glass of beer. Fine. Well, that's not much of a business because anyone can do it, but that's why these guys have all diversified. They want to walk in and take over a terminal. They don't want

Andrew walking up and down trying to get the cheapest water bottle. They want that monopoly pricing, and they want that shared with the airport. So it's become an interesting. business. They don't trade for great multiples, 11 to 14 times earnings. I'm not going to, you know, say that this is the, you know, this is the reason I think you should get along the stock. But it's interesting. You know, on the last conference call, their chief competitor that I mentioned of Ulta, they're talking about there used to be four players bidding and now there's two. And that's kind of an interesting point. And what they said is, you know, it used to be that when a storefront came open, you put your bid out and the highest bid won. And then eventually,

that business went under because they bid too much. Now they're doing terminal tenders where you're walking in and saying I want Terminal 5 at San Diego Airport and I'm willing to take down all of the stores because I have 70 retail concepts. And that's become

a bit of a better business. And so what you've seen over time is a lot of consolidation and you've seen the airports get smart and the retailers have to adjust and this is one of the two. No, that was a great great overview. And for those who are wondering, Avolta. You said they're Avolta, and I was like, no, it's Duffrey. And Duffrey merged with

Auto Grill and became a Volta. And I know Duffrey was a popular stock and is a popular stock among a lot of value investors. So if you've looked in the past, I'm sure a lot of people looked in the past a couple years. Avalta is Duffrey. That's what he's referring to. So I guess my question is this, right? You will hear this travel retail, and again, there's not a lot of them, but it is a popular niche sector among value investors, I would say, because for everything you're laying up, right? There aren't a lot of competitors. You have a very captive audience.

You know, everyone who, I'm sure everyone has been to the airport once, and you get through security and your flight's delayed by an hour, and you're there, and you're hungry, you're thirsty, and you go and you, the water bottle's $4, right? And you're like, oh, my God, the margins these guys are making must be crazy. That is Duffrey. That is travel retail. That is what's happening here.

But my question is, yes, that is attractive to have a captive audience. But, you know, the captive audience is beholden to the airport. So my question is, why doesn't the airport suck out all the economics? Even if there's two skilled players here, right? Like, I'm just thinking of LaGuardia. There's two, let's say there's two skilled players. There's Zardia and Duffrey, slash a volta. LaGuardia could go to them and say, hey, we've got the busiest airport of the world.

Do you want the terminal? How much of the sales are you going to give up? They could pitch it to them. And then if they don't like those bids, I'm sure there are 15 different, like, concession companies in New York they could go to, in New York, they'd go and say, hey, you want a whole terminal? Will you do better than this? Great. I guess my question for you is, I know a lot of people like it, niche business, play on airline, play on increased spending, all this sort of stuff. But why can these guys make an economic profit versus having it all sucked out by the airline, the airport? Well, I think your question is basically the explanation of why the stock has done terrible, and that's a Volta, right? And since the IPO, I think it's broadly been a disappointment. And to me, the reason it's been a disappointment is exactly what you say. The airports have sucked out the economics.

So what did DeVolta do? Well, they're going to react. They went and did the merger with Auto Grill. They, you know, changed the name. They got to, you know, more locations. They got to be more of one-stop shop. what the airports want more than anything is the biggest honeypot to tax. So getting, in Lagardeer's case, those 70 different brands where they can come in

and be the concessionaire that has the instant on button. You know, these things trade for 10, 11, 12, 13 times earnings for a reason. Because to me, the core problem being it's the person with the real estate that has, you know, the vacuum cleaner on the economic. They're going to suck all that stuff their way. But if you are bidding on, you know, all New York City. airports as well as, you know, 500 other airports across the globe. You know, you have a certain, you know, expertise, you have those banners, you're properly signing exclusives where you can get

them, and you can bring more dollars to that airport if you can bring more brands and get people to stop more often and get them to pay a little bit higher price on things where the frequency goes up. And in a way, as well, they get to, you know, unified price. in a way, you know, in order to decrease the size as well. So, yeah, I think you're right. You know, immediate, I looked at a Volta a little bit. You know, the medium term targets there are 60, 30 basis points of margin expansion, 6% revenue growth.

You know, to me, they're getting a lot of that away. But, you know, we're not giving everything away because I do think it makes the decision easier on the airport. And if you can get more and more exclusive brands, you know, power to them, right? Yeah. No, and look, I do think there's something to, hey, in my LaGuardia example, yes, airport, you can go, if you don't like Arbid and a Volta's bid, you can go shop it out. And I'm sure there are any number of people who run concession stands and everything who will come into LaGuardia. But A, if you shop it out to, you know, if you put 15 different retail conference, you're going to have to do with 15 different people. That's going to be a real headache for you. And B, if you go with someone, you know, a caterer or something who's going to take over the space, they're not optimized for this. So yeah, maybe they give you, if we gave you 10% of sales, maybe they give you 15% of sales, but 10% of sales, if our sales are 20% higher is much better than 15% of their sales, right? I don't know if I

did that math in my head, right? But we'll do a lot more sales. So everyone will make more money. As you said, the pot will be bigger. And by the way, you know, if you have a caterer in New York come and do this, the food might be slower. It might not be as tasty. There might be a lot of outages. Like, your passengers might be more unhappy. And look, everyone remembers the Guardia of 10 years ago. I'm not sure if airports care about unhappy or happy passengers, but you know, on the margin. Let me quick, I want to switch to some of the parts, but before we hit, let's do some of the parts, actually. As you and I are talking, I'll pull it up the stock closed last night at 21. I think you said that they've been buying back shares, but you know

what it is in on-dunk where they've got a very small free float that we'll address soon, but how do you kind of think about when you're buying the stock at 21, what do you think the ultimate like kind of some of the parts looks like yeah so i'm not going to you know make my valuation argument on travel retail i think you know looking at the peers and i you know check them yesterday they're kind of in that 11 to 13 times earnings range i think that's pretty fair um i sent you a report you know going into this from bernstein they have a three and a third billion you know target you know that sounded right to me it's kind of you know um you know it's in the range of what I assume, you know, fair value to be.

I will make a plug. Andrew Brown from East 72, did a really great least adjusted analysis here on operating cash flow, which, you know, given the way amortization works, it's worse if you guys really care looking into it. And he is fantastic on these European whole coasts. He's absolutely fantastic. And I think and hope we'll have him on the podcast at some point. He might hear this and be convinced.

No, I know. I know he will. He wished me luck this morning. He had a nine times cash flow multiple, and that equated to about $3.7 billion on last year's number. So I think you can get, you know, a couple of different ways. You know, the Bernstein report that I shared with you had a DCF. I'm using an earnings multiple. Andrew was using a cash flow multiple.

I think $3.5 billion is your number, you know, $3.35. And I'm not going to argue it or claim that, you know, the upside is going to be heroic. You know, in fact, I don't know. I think it's just about reasonable. Where I do think the markets got it wrong is on publishing. So publishing, if you were to look at, you know, KKR, they paid Sherry Redstone 8.2 times. That was a midnight price. That deal needed to be done immediately.

Bollary was offering nine times EBITDA and Sherry wouldn't take it because she was five times levered. So what did KKR do? They bid basically half the multiple that Bertelsman's. Penguin and Rinal House bid, those guys bid 15, and that's where it was locked up. So 15 times EBITDA for publishing. That didn't fail, Justice Department stepped in. I don't think you can use that number. But you look at Hought and Mifflin was sold to Veritas Capital at nine and a half times

EBTA. You have that KKR mark. I think that's an artificially low mark. I think you can very easily argue into 10 times EBITDA for publishing. I mean, we're talking about long-duration cash flows. I think there's an organic opportunity. you know, through audio books, you know, Bolaire's been the king of inorganic.

This morning I mentioned he bought Barnes & Noble's business. I mean, you look at how he built Havas. You know, he spent 40 years building transportation. It was 300 million at a time. And, you know, this, you know, they've talked to LaGuardia. They've said they can do 35 million, you know,

eyes closed with a huge pipeline and publishing. So I think the inorganic and the organic opportunity means that books are worth no less than 10 times, EBITDA, I have a little bit over 400 for publishing. And so, you know, I'm near $4 billion there. And, you know, that gets you to, you know, they've debt, billion, nine, there's some minorities, less, some corporate costs and other kind of random assets that you mentioned radio, some TV sports, et cetera.

You know, that's, you know, that's $36, $38, so is the way I'm doing it. on 141 million shares. Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding? Let's talk about something that could transform your workflow, Dulupa. Delupa delivers perfect historicals for thousands of public companies. That means every KPI, operating data, financial metric, adjustment, and guidance, all at your fingertips. And here's the best part.

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That's great. So I think that plays nice thing to the next question. The spin is coming next month, right? And then you'll have really weird kind of Liberty Series, serious situation where you've got probably a more liquid, bigger hatchet, trading company that's main asset is this. You've got Qatar, it owns about 15% of the float here. You got the LVMH guys own another 10%. They've turned down prices above the current prices. So it creates an interesting dynamic and setup where you could imagine this going a lot of different ways. So I'll just ask, you know, as we come into the spin, and I'm not asking you

to project a spin price or I'm saying, you know, if we play this down two or three years down the road, what do you think is most likely? Because you could say, hey, they're doing the spin in advance, to get ready to sell the whole co. You can say, hey, they're doing this in advance to get ready to sell one of the parts and focus on another. There's a lot of different place. So how do you think it all plays out?

Yeah, so, I mean, I think where it ends is Boloray spin merging or selling travel retail. I don't think that's the right business for him. He's not shown a predilection for that business, not the right return stream, not the right capital intensity profile. First, he's going to work up the margin a little bit. So, you know, I just focus on

intrinsic value. I think they're going to continue building the business. I think they're going to be doing, you know, a couple percent of revenue inorganically, you know, every single year at both businesses. And I think, you know, we grind up intrinsic value. Today, it's high 30s, you know, three years from now, you know, it's high 40s. And in the meantime, they're buying, you know, shares back, you know, at very discounted prices. You're getting a tidy dividend. You're paying down some debt. At this earnings multiple or this free cash flow yield, they kind of have the opportunity to do all three, and they've been doing that. So hopefully that continues. How the spin dynamic works, look, it'll be really interesting. You know, part of why the stock is down

at these levels is because, you know, nobody's really sure exactly how Boloray is going to play his hand, knowing that he's got $6 billion in the bank. So I do think, you know, your stomach will be tested here and there. I don't think this one goes lower. And I think the reason, you know, it could go much higher is you have someone, you know, namely in Qatar, but also an LVMH, that very easily, you know, could resist a squeezeout. And I think that fact that the upside is not capped is the one thing that makes this one unique. And the reason, you know, I think, you know, when you asked Orbiter, why not invest in the guard? And he said something to the fact, and he's been right. He said, you know, clearly, you know, Boleray is trying to make himself money,

but usually you don't want to invest in the target. You want to invest in the investor. And I think he's been right about that. The thing that I believe is different here is Qatar. It sounds like you think Bulleray, his interest, your interest, everything lies in the publishing business. And I'm just, when I read the earnings, I read the annual report, the sending me in the earnings call and advanced this. and the CEO here is Arnaud La Jardier, right? Like, I believe his parents are the ones who founded it, if I remember the story correctly. But when I read it, not that he was more interested in one or the other,

but I thought there might have just been a little bit more focus on travel retail. So I wanted to ask you that in two ways. One, do you think there's maybe just a little friction between what he's more interested in versus what Bollier, the controlling shareholder, the majority of the shareholder is interested? That's one way I want to ask. because look, it's not loss of me. They're spinning off, and it's called the hatchet group, right? That kind of does tell you that they're focused on this as a publishing asset,

not a travel retail asset. So that's one way I guess a way to resolve that could be, hey, you could imagine a future where they split, and they do an MBO taking the travel business to the CEO, the chair, all that. They MBA the travel retail business, and then you split out the publishing that's leading. But I guess the focus I want is, do you think there's a little bit of separation of vision between the management in the kind of controlling shareholder here?

Yeah, you know, so you might have read this in my notes. You know, he's a bit of a colorful character. You know, he was removed his CEO in April. You know, it was some pretty nasty charges, embezzlement, but some other pretty nasty personal things. He was reinstalled a few months later, but in April, when he was originally removed, they put a Bollary guy in.

And a Bollary guy that ran Canal, You talked to Boloray, they said, hey, give us 12 to 18 months, let our guy in the inside, who's not deputy CEO, let him, you know, tell us what he thinks. I don't think they're in any rush on travel retail. I think they're going to test this. I mean, you know, you talk to them about the margin. I mean, look, they think they can get three or 400 basis points margin in publishing. But in travel retail, they're talking about 50 basis points at a time.

You know, they're hoping they can get to five, five and a half, six and a half, but over multiple multitude of years so yeah i mean look everyone knows these stats but we're only you know global airline miles are 94% of what they were in 2019 it probably should be you know something like 105 given GDP growth so we have a bit of a cyclical opportunity i do think there's a secular story in travel you already referenced it you know but then also boloray knows that there's a margin opportunity here he put 5500 units together you know that's quite a number and yeah does Does he spin this off to LVMH, and that's part of the terms because, look, they have 400 duty-free stores? Yeah, maybe.

You know, there might be some of those things down the road, but, you know, Bolleroy is going to try to take the tree dry first before selling, you know, the fruit-producing capability. And I think, yeah, they're in no rush on travel. I think they will study. I think they will move up the margin. I believe that they will make it more valuable. And I think that's kind of the core of the thesis is I really like the intrinsic value. of both of these business, and it's their potential for growth. I do think we're going to get closing of those discounts, but it will be when they're good

and ready. So, yeah, I believe there are no rush. I think, you know, you're very perceptive to pick up on that because that's very much the messaging, even behind the scenes from both sides of the aisle. Could they do something in a shorter term? Sure. But, you know, that's because private equity might have big money. Maybe Qatar wants it, right?

So there are, you know, different things that they could do, you know, in the medium term, if the price was right. But if not, I see a decent runway on growth. Yeah. No, that was a great answer. That was a great answer. I think we've hit most of my questions. We've hit most of the questions people asked it out here. I don't know.

Before we wrap this up, anything else you think we didn't hit, we should end harder or anything else you want to hit on here? You know, no, I don't think so. I mean, I think, you know, this is kind of an odd duck. $300,000 trade every day. You know, you have to really, you know, spend your time thinking about, you know, the ability to not be squeezed out, some of the spin dynamics we're talking about. But I think, you know, the business quality is what I hope people pick up on when, and shines through once they do it.

I don't think, you know, you ask, you know, maybe this is a great way to end it, right? What is Todd Combs say him about to talk about on Saturdays? S&P 500 names that can grow, you know, that are under 15 times earnings that are going to earn more in five years with a 90% confidence interval and use a 50% confidence interval on growth at 7%. So, you know, is this below 15 times earnings? Yes. It's 10 to 11. Are they going to earn more in five years? Yeah, I think very clearly they will. You know, I have 90% confidence. Will they get to that 7% compounded number at a 50% confidence interval? I think that's the million-dollar question. You know, I don't think publishing was historically a great growth business. Travel retail, you know, they haven't been able to keep a lot of their growth. You know, Barclays is the one that's still publishing.

They have 9% growth over kind of a medium term. That might be a bit aggressive. But I don't think, you know, when you're looking at, you know, kind of 10 times earnings and a 3% dividend yield, you really have to worry about it. So I think you might be on the other side of that 7% growth. And, you know, to me, you know, that's pretty darn appealing. for how steady any of these businesses are. So, no, I think I just close it that way.

That's fantastic, great summary. Look, I think it's a perfect time to talk about because, as you said, under a million shares trading every day right now, but there's about to be this big spinoff, and that spinoff, the controlling hole, it's going to be a lot more liquid than this. So there's going to be a lot of interest,

and I hope people come, listen to this, get some background, maybe reach out to you. Eric, I guess there's a few things. A, I can include a link. I think you said to your LinkedIn in the show notes if you want to reach out to follow up with them and everything. Yeah, that'd be great. And then B, B, B, Y, X, B, Y, X, you know, you can go look at the mutual fund. You can see the holdings. It's got a lot of past podcast favorites.

Burford is way up there. I'm Longget. You're Longget. I guess we can disclose that. As I was saying, it's been one of the more interesting than a more frustrating to strange where IWG, Nintendo. Like, you can look at the holdings. It's a lot of interesting company. So we'll have to have you back on to talk about some of these. in the near future. But Eric, thank you so much for coming on, and I think we'll wrap it up there. All right. Thanks, Andrew. I appreciate it. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.