UPDATE 1-Vodafone, Liberty line up to buy Spanish cable group-sources

Tue Jan 28, 2014 12:44pm EST

By Paul Sandle and Julien Toyer

LONDON/MADRID Jan 28 (Reuters) - Vodafone and Liberty Global are competing to buy Spain's largest cable operator, Ono, from its private equity owners, two people familiar with the situation said on Tuesday.

Ono had been planning an initial public offering this year in a bid to capitalise on a wave of investor interest in the increasingly successful cable sector, sources told Reuters earlier.

Liberty Global, owned by billionaire John Malone, has been on a spending spree to increase the size of its empire in Europe, where it derives more than 90 percent of its revenue.

It bought Britain's Virgin Media for $15.8 billion last year, and just on Monday agreed to pay 10 billion euros ($13.7 billion) for Dutch cable operator Ziggo after months of negotiations.

Spain is one of the few European countries, along with France, where Liberty is not already present. Vodafone, for its part, has been acquiring broadband assets to allow it to offer bundled services to consumers and offload traffic from its mobile networks.

The two companies fought to buy Germany's Kabel Deutschland last year, with Liberty forcing Vodafone to raise its offer to 7.7 billion euros.

Liberty's deal to buy Ziggo was struck at an enterprise value to 2013 core profit (EBITDA) multiple of 11.3 times, compared with a median of 9.4 times for its peers, according to Reuters data. Liberty paid about 8 times forward EBITDA for Virgin Media.

Investment funds Providence Equity Partners, Thomas H. Lee Partners, CCMP Capital Advisors, and Quadrangle Capital own 54 percent of Ono, according to the company's website.

The funds are holding ongoing talks with Vodafone and Liberty, one person familiar with the situation said.

Ono had core earnings of 752 million euros for 2012, which at the median multiple of 9.4 times would give an enterprise value of 7.1 billion euros.

One banking source, however, said Vodafone or Liberty would have to come in with a bid at a multiple of 10-12 times if it wanted to win over the IPO plan.

Analysts believe a price war is the main reason behind the upcoming market consolidation in Spain, with smaller players Ono, Jazztel and Yoigo, owned by Teliasonera in the spotlight.

The Spanish telecoms market has become increasingly competitive in recent years, with Telefonica last year launching a quadruple-play offer, which bundles fixed and mobile phone contracts with internet and TV services and is sold at a cheaper price than each service individually.

The move forced other operators, such as Vodafone, to slash prices and overhaul its offer in Spain. The British company has already struck a deal with Orange to offer broadband services in major cities.

A Spanish banker active in the telecom sector said it would make sense for Vodafone to buy Ono. However, it would create a big headache for Jazztel, which has also launched quad play services. Its shares have risen about 70 percent over the last 12 months, making it comparatively more expensive than Ono.

"If the deal ends up being done, Jazztel will lose its ideal lover," he said. "The only other candidate (to buy out Jazztel) would be Orange, but it's not ideal."

Ono, Vodafone, and Liberty declined to comment.

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