http://www.businessweek.com/news/2012-09-20/liberty-global-s-2-dot-5b-telenet-deal-add-to-europe-growth

Bloomberg News

Liberty Global’s $2.5B Telenet Deal Add to Europe Growth

September 20, 2012

Liberty Global Inc. (LBTYA:US) offered to buy the remaining 49.6 percent of Belgium’s Telenet Group Holding NV (TNET) for 1.96 billion euros ($2.5 billion), allowing the John Malone- led cable company more access to Europe’s pay-TV growth.

Liberty Global, based in Englewood, Colorado, said today that Telenet investors will get 35 euros a share in cash, according to a statement. The offer is 13 percent higher than yesterday’s closing price for Mechelen-based Telenet’s shares. A favorable financial market allowed Liberty to raise money for the transaction over the past month, Chief Executive Officer Michael Fries said at a New York investor conference.

The deal gives Liberty Global a bigger foothold in Europe, where demand for TV, Internet and phone services delivered over cable is increasing. It follows the company’s acquisitions of German cable provider Kabel Baden-Wuerttemberg for 3.16 billion euros last year and its larger competitor, Unitymedia, for 3.5 billion euros.

The latest deal will allow Malone, Liberty’s chairman, to “push for stronger collaboration and synergies with his other European operations,” said Marc Hesselink, an analyst with ABN Amro Bank NV in Amsterdam. “The premium he paid on the Telenet share is also not excessive, which makes it a good deal.”

While Europe is Liberty Global’s biggest market, the company also has assets in Latin America. Its European customers total 18.4 million. With Telenet’s 2.15 million cable-TV users, Belgium is Liberty Global’s second-biggest market after Germany.

‘An Oddball’

“We are a bit of an oddball,” Fries said in an interview. “Everyone’s whining about Europe, but we’ve had really good success. We are in the right markets with the right products at a time when people need connectivity.”

Demand for cable services in Europe is increasing, with customers migrating to digital connections from analog. Digital cable penetration among German households is projected to rise to 23.7 percent in 2016 from 11.6 percent in 2011, according to research firm IHS Screen Digest. Total TV, Internet and phone subscriptions with cable companies in the country are forecast to rise by 24 percent to 32 million in 2016.

The offer values Telenet at 5.6 times its earnings before interest, taxes, depreciation and amortization. That compares with a median multiple of 5.3 for 114 telecommunications deals in Western Europe in the past year.

‘Highly Accretive’

“This is a highly accretive deal for our shareholders and their shareholders,” Fries said. “Now we get access to 100 percent of the cash flow, whereas before we only got half of it.”

Telenet shares had advanced 5.5 percent this year through yesterday. Liberty Global, which currently owns a 50.4 percent stake in Telenet, rose 0.7 percent to $57.69 at the close in New York, bringing its year-to-date gain to 41 percent. Ziggo NV (ZIGGO), a Dutch cable company, rose 5.2 percent in Amsterdam.

“There’s never a perfect time, but it seemed like the right time,” Fries said. Liberty had owned a majority stake in Telenet since 2007.

Telenet today raised its sales and profit forecasts for 2012, helped by growth in the number of subscribers that use multiple services such as digital-TV and mobile-phone connections. Sales will probably rise 7 percent to 8 percent, compared with a prior range of 5 percent to 6 percent, and Ebitda growth should match that rate, it said.

The company said it will continue preparing a plan to buy back an 18.2 percent stake at a price of 31.75 euros a share. That price was revised down from an initially announced 35 euros due to a decrease in the company’s capital. The buyback will take place if Liberty Global doesn’t complete the offer or doesn’t meet its conditions, Telenet said.

Telenet gained 67,200 so-called triple-play subscribers, which use TV, Internet and phone services, in the first half, bringing the total share to 38 percent of the company’s customers. That allowed Telenet to boost average revenue per user 10 percent to 45.10 euros a month.

Liberty Global is being advised by Morgan Stanley and Freshfields Bruckhaus Deringer LLP.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Joseph de Weck in Frankfurt at jdeweck@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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