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Liberty Global to Buy Rest of Telenet for $2.5 Billion

Liberty Global CEO Mike Fries
Mike Fries, chief executive officer of Liberty Global Inc. Photographer: Matthew Staver/Bloomberg

Liberty Global Inc. offered to buy the remaining 49.6 percent of Belgium’s Telenet Group Holding NV for 1.96 billion euros ($2.5 billion), allowing the John Malone- led cable company to forge closer ties between European units.

Telenet investors will get 35 euros a share in cash, Liberty Global, based in Englewood, Colorado, said today in a statement. The offer is 13 percent higher than yesterday’s closing price for Mechelen-based Telenet’s shares. Telenet jumped to 34.97 euros at 12:46 p.m. Brussels time.

Liberty Global Chairman Malone and Chief Executive Officer Michael Fries are expanding in Europe, where demand for TV, Internet and phone services delivered over cable is increasing. Liberty Global has controlled Telenet since 2007, and it bought German cable provider Kabel Baden-Wuerttemberg for 3.16 billion euros last year and its larger competitor, Unitymedia, for 3.5 billion euros in 2009.

The deal will let Malone “push for stronger collaboration and synergies with his other European operations,” said Marc Hesselink, an analyst with ABN Amro Bank NV in Amsterdam. “The premium he paid on the Telenet share is also not excessive, which makes it a good deal.”

The offer values Telenet at 5.6 times its earnings before interest, taxes, depreciation and amortization. That compares with a median multiple of 5.3 for 114 telecommunications deals in Western Europe in the past year.

Growth Market

Telenet shares had advanced 5.5 percent this year through yesterday. Liberty Global, which owns a 50.4 percent stake in Telenet, fell 0.2 percent to $57.28 yesterday in New York and has climbed 40 percent this year. Ziggo NV, a Dutch cable company, rose as much as 5.4 percent in Amsterdam.

Europe is Liberty Global’s biggest market, and the company also has assets in Latin America. Its European customers total 18.4 million. With Telenet’s 2.15 million cable-TV users, Belgium is Liberty Global’s second-biggest market after Germany.

Demand for cable services in Europe is increasing, with customers migrating to digital connections from analogue. Digital cable penetration among German households is projected to rise to 23.7 percent in 2016 from 11.6 percent in 2011, according to researcher IHS Screen Digest. Total TV, Internet and phone subscriptions with cable companies in the country are forecast to rise by 24 percent to 32 million in 2016.

Raised Forecasts

Telenet today raised its sales and profit forecasts for 2012, helped by growth in the number of subscribers that use multiple services such as digital TV and mobile-phone connections. Sales will probably rise 7 percent to 8 percent, compared with a prior range of 5 percent to 6 percent, and Ebitda growth should match that rate, it said.

The company said it will continue preparing a plan to buy back an 18.2 percent stake at a price of 31.75 euros a share. That price was revised down from an initially announced 35 euros due to a decrease in the company’s capital. The buyback will take place if Liberty Global doesn’t complete the offer or doesn’t meet its conditions, Telenet said.

Telenet gained 67,200 so-called triple-play customers using TV, Internet and phone services in the first half from a year earlier, bringing the total share to 38 percent of the company’s clients. That allowed Telenet to boost average revenue per customer 10 percent to 45.10 euros a month.

Liberty Global is being advised by Morgan Stanley and Freshfields Bruckhaus Deringer LLP.

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