| UTRECHT, Netherlands/BRUSSELS
UTRECHT, Netherlands/BRUSSELS U.S. cable group Liberty Global has won its 10-month pursuit of Ziggo with a deal that values the Dutch operator and its debt at 10 billion euros ($13.7 billion) and expands billionaire John Malone's vast European cable empire.
Ziggo rejected an initial offer from Liberty last October as too low, seven months after the U.S. group controlled by Malone first bought shares in its Dutch target.
On Monday, Ziggo accepted a cash-and-shares offer at 34.5 euros per share, a 22 percent premium to Ziggo's share price just before Liberty's initial bid.
Liberty has been driving consolidation of the European cable market to profit from rising demand for faster Internet and digital television.
The company, which gets over 90 percent of its revenue in Europe, has built its position via acquisitions from Ireland to Romania over the past decade and already owns 28.5 percent of Ziggo as well as the whole of Dutch peer UPC.
Combined with UPC, Liberty will reach 7 million people or about 90 percent of Dutch homes, and challenge former state monopoly KPN in mobile and for business customers.
Ziggo's shares were down 2.6 percent at 32.375 euros at 1633 GMT, compared with a 1.3 percent decline in the STOXX European telecoms index. Liberty shares were down 2.7 percent.
Rabobank analyst Frank Claassen said Ziggo's share price may have reflected over-optimistic investor expectations about the impending offer.
"The cash part is fairly low, and the rest is in Liberty Global shares, so there's uncertainty about how the Liberty Global shares are performing," he said, adding that securing regulatory approval would add several months of uncertainty.
Liberty said it expects to find 120 million euros in cost savings including job cuts from its UPC/Ziggo combination and a further 40 million euros in core profit from revenue growth by 2018.
One job set to go will be that of Rene Obermann, the former Deutsche Telekom chief executive who took charge at Ziggo only this month.
END OF EUROPE CONSOLIDATION?
However, Liberty Global, which owns Germany's second-largest cable operator UnityMedia and bought Britain's Virgin Media for $15.8 billion last year, said in November it did not envisage large-scale acquisitions beyond Ziggo in Europe.
Bernstein Securities analyst Sam McHugh said Spain's ONO, which sources say is in talks with Vodafone, Portugal's Zon and France's Numericable were other potential acquisition targets.
Liberty, seeking scale and efficiency gains, and Vodafone seeking fixed-line assets to compete with incumbents were the two main likely buyers.
"We are perhaps approaching the end of an amazing (M&A-led) rally for European cable. We're also seeing traditional telecom companies respond, such as with incremental network investments in fibre and TV," he said.
Ziggo shareholders will receive 11 euros in cash and a mix of Liberty stock per share.
Liberty, which will also pay a stock dividend, said the cash component will be 1.6 billion euros and that it would raise Ziggo's debt by 1.5 billion euros. Ziggo, which had net debt of 3.1 billion euros at the end of 2013, launched the financing on Monday.
Ziggo said the deal gave it an enterprise value to 2013 core profit (EBITDA) multiple of 11.3 times. That compares with a median of 9.4 for its peers, according to Reuters data. Liberty paid about 8 times forward EBITDA for Virgin Media.
Liberty's financial advisers are Bank of America Merrill Lynch and Morgan Stanley, and its legal counsel is Allen & Overy. Ziggo is working with J.P. Morgan and Perella Weinberg Partners and law firm Freshfields Bruckhaus Deringer. ($1 = 0.7307 euros)
(Additional reporting by Sara Webb, editing by Adrian Croft and Erica Billingham)