RPT-DEALTALK-Sale of KBW all rewards, no risk for Sweden's EQT

Tue Mar 22, 2011 12:57pm EDT

(Repeats with corerct format in dateline, no other changes)

For more Reuters Dealtalks, click on [DEALTALK/]

* Sale is conditional on regulatory approval

* Risk of non-approval remains with Liberty

* JP Morgan would own KBW if deal blocked

By Natalie Harrison and Nicola Leske

LONDON/FRANKFURT, March 22 (Reuters) - Swedish buyout house EQT reaps the rewards and none of the risk from its planned sale of German cable group KBW to Liberty Global (LBTYA.O), even if regulators take their time in scrutinising the deal.

Liberty, the U.S. cable firm led by media mogul John Malone, is seeking to add Germany's number-three cable group Kabel Baden Wuerttemberg to Unitymedia, the country's number two player that it already owns. [ID:nLDE72K0NJ]

But EQT -- backed by the powerful Wallenberg family -- has passed on all the risk that German and European regulators block the 3.16 billion euro ($4.50 billion) bid to Liberty, and is already reaping a good part of the cash from the sale now.

An innovative structure will see Liberty's bank JP Morgan (JPM.N) hold the company and hunt for a new seller should regulators block the deal, leaving the U.S. group to cover the costs and pick up the tab for any shortfall in value.

"In the extremely unlikely scenario that Liberty would not receive approval ... JPMorgan would acquire the company on a temporary basis and subsequently resell the asset", a banker involved in the transaction said.

Liberty Global has signalled the approval process may take some time, saying it expects the deal to close in the second half of the year.

And a spokesman of the German federal cartel office said that the deal is likely to need approval from the European Commission due to the size of the deal.

"Revenue of the two entities is so high that ... it will likely automatically go to Brussels," he said.

Liberty landed KBW after it sweetened its offer to exceed EQT's initial price target of more than 3 billion euros, after private equity firm CVC emerged as a front-runner to buy the business late last week.

MONEY NOW

But whether the deal gets regulatory approval or not, EQT is guaranteed a full exit from Kabel Baden Wuertemberg, which it bought in 2006 for 1.3 billion euros.

It will own KBW pending regulatory approval, and JP Morgan will become the new owner if the deal is blocked.

But EQT is already getting its money. It will pay itself an immediate 1.15 billion euro dividend by refinancing existing debt once a 2.25 billion euro high-yield bond to finance the acquisition prices this week.

And it will get a further 900 million euros when the deal is cleared or when JPMorgan sells the business.

With the deal allowing Liberty to close the gap on dominant German Cable operator Kabel Deutschland, there is a risk regulators could block it.

The combined entity would have some 7 million customers, bringing it closer to Kabel Deutschland (KD8Gn.DE), which provides its services to 8.8 million households.

German regulators in principle are sceptical of mergers in the cable sector.

Kabel Deutschland tried to merge with Kabel Baden-Wuerttemberg and Unitymedia in 2004 to create a sizable rival to telecom group Deutsche Telekom (DTEGn.DE) but the cartel office threatened to veto the plans.

Cable companies have been very successful with their so-called triple play packages, eating into the business of telecom operators such as market leader Deutsche Telekom. (Additional reporting by Peter Maushagen, Writing by Simon Meads, Editing by Douwe Miedeman and Erica Billingham) ($1=.7022 Euro)