Liberty Global Plc (LBTYA), the company controlled by billionaire John Malone, agreed to fully take over Dutch broadband provider Ziggo NV (ZIGGO) for 4.9 billion euros ($6.7 billion) to cement its dominance in Europe’s cable industry.
Ziggo investors will receive 34.53 euros for each share -- including 11 euros in cash and the remainder in Liberty Global stock, the companies said today. That’s 3.8 percent more than the Jan. 24 close. Ziggo, which fell as much as 6.7 percent today, is seeking 3.7 billion euros of loans to finance its buyout, said a person with knowledge of the matter, who asked not to be named because the discussions are confidential.
With 2.7 million customers, Ziggo allows Liberty Global to combine the business with its UPC cable unit to take on Dutch carrier Royal KPN NV. European cable and fixed-line assets are attracting buyers, with Vodafone Group Plc (VOD) acquiring Kabel Deutschland Holding AG for more than $10 billion in October -- beating an offer from Liberty Global -- to bolster its fixed-line business in Germany.
“It’s a fair offer,” said Emmanuel Carlier, an analyst at ING Groep NV in Brussels. “That the shares are falling is due to the offer being for a large part in stock, some people can’t or don’t want to have U.S. stocks.”
Liberty Global has sought to extend its reach in Europe, acquiring the U.K.’s Virgin Media Inc. last year for about $16 billion. The company also operates in Germany, Switzerland, Austria, Belgium and Ireland as well as eastern Europe.
It’s also studying a spinoff of its Latin American businesses, a move that would make London-based Liberty Global a purely European cable company.
Ziggo, based in Utrecht, said on Dec. 12 it was in talks with Liberty Global, after Bloomberg News reported that Malone’s company was preparing a full bid. The Dutch operator last year rejected a takeover bid from Liberty Global. Together, UPC and Ziggo will be the leading provider of communications services in the country, the companies said in today’s statement.
“Our combined operations will reach over 90 percent of all Dutch households allowing us to compete more effectively with the other national telecommunications and satellite platforms in the Netherlands, and at the same time generate significant revenue and operating efficiencies,” Liberty Global Chief Executive Officer Mike Fries said in the statement.
Former Deutsche Telekom AG (DTE) CEO Rene Obermann, who took over as Ziggo’s chief this month, will leave the company after the purchase is completed. Liberty Global predicts synergies from the combination to reach an annual run-rate of 160 million euros by 2018.
Including debt, the deal values the Ziggo at 10 billion euros, Liberty Global said. Malone’s company is paying about 11.5 times Ziggo’s earnings before interest taxes, depreciation and amortization, compared with a median of 9.5 times for similar transactions, data compiled by Bloomberg show.
Shares of Ziggo fell as much as 2.24 euros to 31.01 euros and traded 2.7 percent lower at 32.35 euros at 3:56 p.m. in Amsterdam. Liberty Global dropped 2 percent to $81.57 in New York trading.
“It’s a disciplined offer by Liberty,” said Marc Hesselink, an analyst at ABN Amro Bank NV, who recommends buying Ziggo.
The companies said they expect to complete the transaction in the second half of 2014. Liberty Global was advised by Bank of America Corp. and Morgan Stanley and law firm Allen & Overy LLP. Ziggo worked with JPMorgan Chase & Co. and Perella Weinberg Partners LP as well as law firm Freshfields Bruckhaus Deringer LLP.
Ziggo shareholders will own about 13 percent of the adjusted outstanding shares of Liberty Global and will have about 9 percent of the voting rights, the companies said.
Before today, Ziggo shares had gained more than 80 percent since the company’s initial public offering in March 2012. The stock jumped 34 percent in 2013 in Amsterdam.
Separately, Liberty Global agreed to buy back shares worth $1 billion, which will be added to its two-year $3.5 billion stock repurchase program already under way. Liberty Global has repurchased more than $10 billion of its equity since 2005, Fries said in a separate statement.
Back at home, Malone re-entered the U.S. cable market in May when his Liberty Media Corp. (LMCA) paid $2.6 billion for 27 percent of Charter Communications Inc., the fourth-largest U.S. cable operator.
Earlier this month, Charter announced an offer for Time Warner Cable Inc. valuing the cable provider at more than $61 billion including debt. Time Warner Cable rejected the bid as too low. Liberty Media has announced an all-stock offer for the outstanding shares of satellite-radio company Sirius XM Holdings Inc.
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