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Liberty Splashes $5.2B on German Operator

Liberty Global Inc. (Nasdaq: LBTY) signaled its intent to dominate the European cable market Friday by announcing a €3.5 billion ($5.2 billion) deal to buy Unitymedia GmbH , Germany's second-largest cable operator.

Liberty, which already has 11.5 million customers in 10 European markets, is paying €2 billion ($3 billion) to buy all of Unitymedia's stock, and will take on the German operator's €1.5 billion ($2.23 billion) in net debt. The operator is currently owned by private equity firms BC Partners and Apollo Management, and was formed by the merger of two operators, iesy and ish, in 2005.

Unitymedia -- which offers broadband, voice, and pay-TV services in the German densely populated federal states of North Rhine-Westphalia and Hesse, where it competes primarily with Deutsche Telekom AG (NYSE: DT) -- had been expected by some financial analysts to announce an IPO on Thursday, when it announced third-quarter revenues of €232 million ($345.3 million) and a net profit of €60.7 million ($90.4 million).

Instead it's becoming part of the Liberty Global European empire, which currently comprises UPC Broadband -- operational in Austria, the Czech Republic, Hungary, Ireland, the Netherlands, Poland, Romania, Slovakia, and Switzerland -- and Telenet in Belgium. The company recently sold its Slovenian operations to private equity firm Mid Europa Partners for €119.5 million ($178 million).

Germany's other two major cable operators are market leader Kabel Deutschland GmbH , which has more than 9 million customers, and Kabel BW GmbH & Co. , which has about 2.3 million subscribers. They are also currently owned by private-equity companies. (See Kabel Deutschland Closes Year and Kable BW Deploys NDS Tech.)

Unitymedia will add 4.55 million customers (3.25 million analog, 1.3 million digital) to the existing European total, including 537,000 broadband subscribers. The operator's network passes 8.8 million homes in 10 of Germany's biggest cities, including Cologne, Dusseldorf, and Frankfurt. It recently launched a 120-Mbit/s broadband service in Cologne and Aachen following the deployment of EuroDocsis 3.0 equipment. (See Unitymedia Unveils 120M Broadband.)

The acquisition "complements our existing European footprint and has significant untapped growth potential in one of the fastest growing cable markets in Europe," noted Liberty Global CEO Mike Fries in a prepared statement. If the deal is completed, which is expected to happen during the first half of 2010, it will enhance Liberty's European presence and add "significant scale to our global operations, as our footprint, including Unitymedia, will exceed 40 million homes," he wrote.

Liberty Global, which currently has 16.6 million customers globally (Australia, Chile, Japan, and Puerto Rico, in addition to the European operations), recently reported third-quarter revenues of $2.82 billion and a net loss of $120 million.

According to trade association Cable Europe, there are about 73 million cable service customers in Europe, who generated €18 billion ($26.8 billion) in revenues for the operators in 2008. As in the U.S. and other cable markets, the European operators are racing to launch Docsis 3.0-based services, as part of triple-play packages, to compete with the fiber access and increasingly faster DSL services offered by telcos and ISPs. (See ZON Preps 1G Broadband Offer, Virgin Takes Fight to Its DSL Rivals, Euro MSO Hits Back at IPTV, Disclosure of Major New Web 'Clickjacking' Threat Gets Deferred, and ONO! Another Docsis 3.0 Story!)

Check out this video for more background on that turf war:



— Ray Le Maistre, International News Editor, Light Reading

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