Liberty Global pays $3 billion cash for Unitymedia
FRANKFURT (Reuters) - Liberty Global, the international cable operator controlled by John Malone, has agreed to buy Unitymedia from a private equity group for $3 billion in its first German acquisition.
The sale of Germany's second-biggest cable network by a shareholder group led by BC Partners and Apollo is worth $5.2 billion including assumed debt and marks the largest private equity exit in Europe this year.
The private equity group bought Unitymedia for 1.5 billion euros ($2.2 billion) in 2003.
BC owns about 35 percent of Unitymedia and Apollo owns 31 percent, with smaller stakes held by funds such as Och-Ziff Capital Management, a person familiar with the matter said. Company managers own about 6 percent.
Liberty Global shares were down 9.4 percent in New York at $20.93 by 1528 GMT as some analysts questioned whether there was enough future growth at the German company to justify the price.
Unitymedia, second behind Kabel Deutschland, has 4.5 million subscribers in a region covering 10 of the country's 20 biggest cities, including Cologne, Duesseldorf and Frankfurt.
Liberty Global was created from the combination of cable pioneer Malone's Liberty Media International and UnitedGlobalCom in 2005.
It operates in Austria, the Netherlands, Eastern Europe, Asia and Latin America and had until now avoided Germany because of regulatory complications. Unitymedia has taken some measures to simplify operations.
BC Partners and Apollo had been running a dual-track process in which they also considered an initial public offering. Liberty Global now plans to increase Unitymedia's debt to $3.7 billion and use part of the proceeds to fund the equity buy.
The remainder would be funded by a combination of existing liquidity, proceeds from the sale of $750 million in convertible notes and the sale of 6 million Series A and C shares to SPO Partners & Co for about $128 million, Liberty said.
GOOD TIME FOR A COMEBACK
Malone has tried to make inroads into Germany before.
In 2001 Liberty Media launched a multi-billion-euro bid to become Germany's largest cable operator by buying assets from Deutsche Telekom and Deutsche Bank. That was eventually blocked by German regulators.
Guy Bisson, a senior analyst at research firm Screendigest, said Liberty tends to pursue market leaders and Kabel Deutschland would have been the natural choice.
"But as a strategic player Unitymedia is the stronger one," Bisson said because Unitymedia had a higher uptake of digital TV and higher revenue-generated units (RGU) per household.
Asked about regulatory obstacles that thwarted Malone before, Bisson said: "In the late 1990's everyone thought the German market would turn the corner and become more commercial but that never happened ... It's starting to happen now, so it's a good time to get back in the market."
Arndt Rautenberg of OC&C Consultants said he was curious to see how Liberty would increase Unitymedia's core profit.
"With the high multiple they're paying it makes me wonder about the industrial logic," Rautenberg said, adding: "That's quite a bet you're making on future cashflow."
Malone's history shows he does not shy away from risks.
His trademark was using exotic deal structures and financial alchemy that often confused Wall Street investors. But his risky bets made a single share in his company TCI purchased at a 1974 low of 75 cents worth more than $4,000 by 1997.
Unitymedia's Chief Executive Parm Sandhu said Liberty Global had first approached his company three weeks ago and had spent just a week looking at the business before making up its mind.
"It's great for Unitymedia ... We're bringing on board a strategic investor and becoming part of the world's largest cable company," he told Reuters by telephone.
"That puts us in a very good position to compete with the likes of Deutsche Telekom, Vodafone and Sky Deutschland."
The deal values Unitymedia at about 7.4 times estimated 2010 adjusted EBITDA (earnings before interest, tax, depreciation and amortization), Liberty Global said, or about 6.6 times EBITDA after synergies.
BC Partners Chairman Raymond Svider told Reuters the firm had made an annual internal rate of return of 40 percent, having invested about 300 million euros ($446 million) in the business.
The deal is the second largest European private equity exit made to a trade buyer in Europe this year, after Japanese brewer Suntory bought soft drinks maker Orangina-Schweppes from Blackstone and Lion Capital for $3.8 billion.
Unitymedia was advised by UBS and assisted by Morgan Stanley, Nomura, HVB and Latham & Watkins LLP. Goldman Sachs advised Liberty Global.
The transaction is expected to close in the first half of next year.
(Additional reporting by Supantha Mukherjee in Bangalore, Eric Auchard, Simon Meads and Quentin Webb in London; Writing by Georgina Prodhan in London and Nicola Leske in Frankfurt; Editing by Greg Mahlich)