Ziggo NV (ZIGGO), the Dutch broadband provider partly owned by Liberty Global (LBTYA) Plc, said talks to be taken over by John Malone’s company are advancing and predicted that higher marketing costs will halt profit growth this year.
“Discussions have progressed” though it’s uncertain whether an agreement will be reached, Utrecht-based Ziggo said in a statement today. The company delayed setting a final dividend for 2013 because of the negotiations and said earnings before interest, taxes, depreciation and amortization in 2014 will be little changed from last year.
Liberty Global, which owns just less than 30 percent of Ziggo, is putting the final touches on a bid for full control, people familiar with the matter said this month. A purchase would give Malone more flexibility to combine the cable provider with Liberty Global’s Dutch unit, UPC Holding BV. Ziggo began selling mobile-phone services in September, taking on carriers including Royal KPN NV and Deutsche Telekom AG’s T-Mobile.
“We are happy shareholders, and we are in discussions with them, but these things take time,” Liberty Global Chief Executive Officer Mike Fries said in an interview with Bloomberg TV today in Davos. He declined to comment further on talks with Ziggo and reiterated the company’s stance that consolidation among European cable operators is “necessary” and that Europe “has way too many operators.”
Ziggo’s report on talks with Liberty Global came as it said it will extend investment in sales and promotions, as well as product development, to strengthen its position. Capital expenditure will rise about 8 percent to 370 million euros ($506 million) in 2014, with the majority in the first half, it said.
“The outlook is worse than expected, especially because of increased investments while profitability is unchanged,” said Marc Hesselink, an analyst at ABN Amro. “Customer trends are good though.”
Fourth-quarter revenue rose 2.8 percent to 394 million euros from a year earlier. Ebitda excluding some items rose 2.1 percent to 222.8 million euros. The company added 32,000 Internet subscribers during the quarter for a total of 1.91 million. It added 19,000 so-called triple-play customers, who take a bundle of services.
Ziggo shares declined 1 percent to 33.25 euros in Amsterdam. The stock has gained more than 80 percent since the company’s initial public offering in March 2012.
Chief Executive Officer Rene Obermann, who joined Ziggo this month from Deutsche Telekom, said the company is making technological strides.
“The most innovative development clearly was the successful roll-out of Ziggo WifiSpots,” the 50-year-old CEO said in the statement. The service has more than 300,000 unique users a week, he said.
Liberty Global extended its reach in Europe last year by acquiring the U.K.’s Virgin Media Inc. for about $16 billion. Liberty Global attempted to buy Kabel Deutschland Holding AG, a German cable company, and was outbid by Vodafone Group Plc.
While Ziggo’s free cash flow declined in 2013, Chief Financial Officer Bert Groenewegen said he is not concerned because the company has a 1.2 billion-euro note that is callable in May.
“That means blended interest will go down and that will compensate for this increase in capital expenditure,” Groenewegen said during a conference call with journalists.
Ziggo said it will announce a final dividend proposal before the annual shareholder meeting scheduled for April 17.
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