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* 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 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.
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)