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Liberty Global's European Shrinkage

Ray Le Maistre
12/21/2018

In striking a deal to sell its eastern European direct-to-home (DTH) TV operations, Liberty Global Inc. (Nasdaq: LBTY) has taken another step back from the continent, having already agreed to sell its cable assets in Germany, the Czech Republic, Hungary and Romania to Vodafone. (See Eurobites: Liberty Global Offloads East European DTH Ops.)

In his recent comments related to that divestment deal with Vodafone Group plc (NYSE: VOD), Liberty Global CEO Mike Fries said that deal would enable the operator to focus on parts of Europe where it has scale and is positioned to be a "national challenger" -- the UK, Belgium, Switzerland and Netherlands. (See European Commission Digs Into Vodafone-Liberty Global Deal.)

Maybe for now… but what's next? At least one long-time follower of Liberty Global's strategy believes there might be more asset sales to come.

Paolo Pescatore, an independent industry analyst, believes that Liberty Global wouldn't be selling assets such as its German operation if it had a long-term strategy to be a major player in Europe. "I've long argued that Liberty Global wants to exit Europe for three key reasons: Consolidation of the European cable market has been costly; overall, Liberty Global has struggled to integrate these companies; and subscriber uptake has been lacklustre, and so far it has been unsuccessful in cross-selling services into its existing base," says Pescatore.

He adds that "convergence does offer plentiful opportunities but its strategy across Europe is not working. It needs to return value back to shareholders. Organic growth is challenging, and most new subscribers seem to be coming from its new builds, focused on cable broadband, but these are not coming fast enough."

The big test for the operator, according to Pescatore, will be its decision about what to do with its UK operation, Virgin Media Inc. (Nasdaq: VMED), which has annual revenues of more than $6 billion and 5.5 million fixed line customers. It "remains the jewel in the crown in its portfolio … something it does not want to give up too easily." Liberty Global needs to invest further in the UK, or sell, believes the analyst. "Virgin Media is a strategic asset and it can't be sold on the cheap. If the company is serious about Virgin Media, it will need to invest," and that would involve having some sort of mobile network, which is why rumors of talks with Vodafone in the UK are still circulating. (Virgin Media has an MVNO operation in the UK currently, with its services running on BT's mobile network.)

Selling Virgin Media would need to happen at a premium price but a trade sale could be tricky. Vodafone could be a suitor in the future but there might also be some interest from Comcast Corp. (Nasdaq: CMCSA, CMCSK), which is already on track to acquire Sky in the UK: Any such move would probably face regulatory hurdles, as combining a large cable operator with the dominant DTH TV services player in the UK would probably only be allowed if some assets were divested, noted Pescatore. (See Will Comcast's Pricey Play for Sky Pay Off?.)

— Ray Le Maistre, Editor-in-Chief, Light Reading

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