Liberty Global has made a £3.5 billion (US$5.3 billion) offer to acquire Cable & Wireless Communications (CWC) and beef up its presence in Latin America and the Caribbean.
The offer comes mainly in the form of Liberty Global Inc. (Nasdaq: LBTY) stock and that part of the deal would value Cable & Wireless Communications at 78.04 pence ($1.19) per share, or 6.3% more than its price on the London Stock Exchange at the end of last week.
C&W shareholders would also receive a special dividend of 3.00 pence (4.6 cents) per share when the transaction concludes, implying each CWC share is worth 81.04 ($1.23), while Liberty Global will assume net debts of about $2.7 billion currently on CWC's balance sheet, which effectively drives the overall value of the transaction up to $8 billion.
Following news of the deal late Monday, shares in CWC had risen by 6.5% at 10.30 a.m. in London on Tuesday, to about 78.50 pence ($1.19), and are now worth about 36% more than on October 21, when Liberty Global first announced it was in talks with C&W about a possible deal. (See Liberty Global in M&A Talks With CWC.)
As well as being Europe's biggest cable company, Liberty Global also has operations in Chile and Puerto Rico, where it provides fixed, mobile and TV services to a total of 1.7 million customers and generates annual revenues of about $1.2 billion.
In July, the operator set up a new "tracking stock" called LiLAC Group, allowing investors to monitor the performance of these specific assets, and it has hinted that LiLAC Group could eventually be spun off entirely.
The combination of LiLAC Group with CWC would create a unit generating more than $3.5 billion in annual revenues and about $1.4 billion in operating cash flow, and could serve as a platform for growth and additional takeover activity in the region.
CWC provides consumer services across 18 markets in the Caribbean, Panama and the Seychelles as well as enterprise services in a total of 27 markets. It also has a wholesale business that serves companies in 42 Latin American and Caribbean markets.
In its last financial year, it made revenues of about $1.75 billion and EBITDA of $585 million, representing year-on-year increases of 4% and 7% respectively.
Liberty Global's offer values CWC at 10.7 times its current annualized EBITDA, said the cable company, after taking into consideration "unrealized cost synergies" resulting from C&W's $3 billion deal to acquire Columbus Communications Inc. -- another operator in the Caribbean and Latin America -- announced in November last year.
It has already indicated that it can realize $125 million in "run-rate cost synergies" because of the Columbus acquisition and says there will be incremental financial benefits over and above this amount.
Liberty Global chairman John Malone had been the largest minority shareholder in Columbus and ended up with a stake in CWC following that particular deal, raising the possibility he might look to engineer some kind of tie-up between Liberty Global and CWC.
"The acquisition of Cable & Wireless represents a watershed moment for our recently created LiLAC platform," said Mike Fries, Liberty Global's CEO, in a statement. "It will add significant scale and management depth to our fast-growing operations in Latin America and the Caribbean, while creating a new regional consumer and B2B powerhouse. Upon completion the combined business will serve 10 million video, data, voice and mobile subscribers."
As well as drawing attention to the synergy benefits of a merger, Liberty Global indicated that by combining its assets and capabilities with those of CWC it would be able to exploit new growth opportunities in the region, including the sale of consumer quad-play services, which bundle fixed voice, broadband, mobile and TV services in a single package.
A move into quad-play has become a strategic priority for Liberty Global, which recently bought a mobile network in Belgium and held talks with Vodafone Group plc (NYSE: VOD) about a European asset swap that would have helped each company to plug gaps in its services portfolio. (See Telenet Buys KPN's BASE in $1.4B Deal and Vodafone in Asset-Swap Talks With Liberty.)
Those talks were eventually abandoned following disagreements over asset valuation but Vittorio Colao, Vodafone's CEO, has recently hinted the door remains open to a future deal. (See Vodafone, Liberty Call Off Asset-Swap Talks and Vodafone Could Buy Virgin Media, Quit Germany, Says Analyst.)
Speaking at the SCTE Cable-Tec Expo in New Orleans last month, Balan Nair, Liberty Global's chief technology officer, said the addition of mobility to its service bundles was helping the operator to reduce customer churn.
The CWC takeover has yet to receive sign-off from regulatory authorities but Liberty Global expects to complete the transaction next year.
— Iain Morris, , News Editor, Light Reading