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Liberty Intercepts Cablecom IPO

Light Reading
News Analysis
Light Reading
9/30/2005

John Malone's Liberty Global Inc. (Nasdaq: LBTYA) has strengthened its position as the most powerful European cable player by announcing the $2.19 billion cash acquisition of Swiss operator , which earlier this week announced its IPO plans. (See Liberty Buys Cablecom.)

Cablecom, the chief competitor to Swiss incumbent carrier (NYSE: SCM), yesterday announced plans to publicly list its shares on the Swiss exchange in two weeks' time with a price range that valued the operator at between $2.2 billion and $2.7 billion.

Now that plan is history. Instead, Cablecom's owners, which include Apollo Management, TowerBrook Capital Partners LP, affiliates of Goldman Sachs & Co., and a number of Swiss banks, will sell 100 percent of their holdings to Liberty, which, once the deal closes in October, will have cable operations in 14 European countries.

Cablecom has more than 2 million customers, or revenue generating units (RGUs) as Liberty calls them, in a country with a population of 7.5 million. That takes Liberty's total European customer base to more than 12.3 million. With Cablecom's 300,000 broadband customers, Liberty's European broadband subscriber base will total more than 1.7 million.

Cablecom is projected to generate 1 billion Swiss francs ($772 million) this year and become profitable in 2007.

Liberty Global, which provides video, broadband, and telephony services in Europe, Latin America, Japan, and Australia, recorded a net loss of $123 million from revenues of $1.28 billion in the second quarter to June 30. Its share price rose $1.04, more than 4 percent, to $26.65 on today's news.

Heavy Reading senior analyst Graham Finnie noted in a recent report on the European broadband market that Liberty, which until recently was better known as UGC, had during the past few years launched "a more aggressive broadband strategy, based primarily on higher speeds and the addition of VOIP to create a triple-play proposition." (See HR Tracks Europe's Need for Speed and Broadband in Europe.)

With Cablecom also deploying such a strategy, this deal makes sense for Liberty. "Cablecom is one of the few European cable companies to have successfully provided a competitive alternative to an incumbent telco, especially in terms of broadband," says Finnie. "It fits perfectly into Liberty's portfolio, and has been offering VOIP services for a while, which is something Liberty is rolling out now." Liberty currently offers VOIP in France, Hungary, and the Netherlands.

Finnie notes that the Swiss regulatory regime has enabled Cablecom to develop a broadband position. "With Switzerland not being a member of the European Union it has not adopted the same competition rules, and Swisscom still has a firm grip on its access network, so there's very little DSL competition. If you talk to Swisscom, all they ever talk about in terms of market pressure is Cablecom," he adds.

Swisscom currently has about 950,000 DSL subscribers, but will face greater competition over its own network as the regulator forces the introduction of local loop unbundling. Then, notes Finnie in his report, Cablecom may seek to "use DSL selectively to reach into off-net areas." (See Swisscom Slams LLU Ruling.)

The next major cable M&A activity expected in Europe is the merger of the U.K.'s two cable operators ntl group ltd. (Nasdaq: NTLI) and (Nasdaq: TWSTY). Executives from Telewest recently told Light Reading that staff are expecting the deal to close "before Christmas," though they didn't specify in which year. Market rumors that the two triple-play operators will merge to create an even more formidable competitor to (NYSE: BT; London: BTA) have been rife for the past two years. (See Europe Catches M&A Fever.)

— Ray Le Maistre, International News Editor, Light Reading

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