Thwarted in his attempt to strike a deal in Europe with Vodafone, a mobile phone giant based in the humdrum English town of Newbury, John Malone has opted for a smaller Caribbean excursion instead.
One interpretation of the Liberty Global chairman's agreed bid for Cable & Wireless is that he's grown frustrated in his hunt for European assets and spies better returns in the Americas. The $5.3 billion purchase will lift Liberty's revenues from Latin America and the Caribbean from 7 percent to 17.4 percent. Liberty expects the combination to deliver low double-digit operating cash flow growth in the medium term, compared with the high single-digit growth it's aiming for in Europe.
He's paying for that growth: even when adding in synergies from the target's recent purchase of local competitor Columbus, Liberty is offering a multiple of 10.7 times the target company's annual Ebitda, more than its 2013 purchase of Virgin Media in the U.K., though lower than the 11.3 times paid for Ziggo in the Netherlands last year, according to Bloomberg Intelligence.
Yet to characterize the deal as an end to Malone's Europe ambitions -- including getting hold of those elusive Vodafone assets -- goes too far. As part of a mostly stock deal, Liberty will assume Cable & Wireless's $2.7 billion of net debt. Given it already has $47 billion of debt, according to Bloomberg data, a bit more is hardly going to impede future acquisitions. Its market value is $37 billion.
The other less obvious part of the Cable & Wireless deal is that it would lift the revenue Liberty gets from its mobile phone business, as pointed out by Bloomberg Intelligence analyst Erhan Gurses. Over the past six months, Malone's company made about 6 percent of its sales in mobile. Added to Liberty's recent purchase of Belgian carrier BASE, the Cable & Wireless deal will increase the group share from mobile sales to about 12.5 percent.
This should be seen as part of a broader international push by Malone to expand Liberty's mobile operations, something he believes necessary to provide new channels for his cable content as competitors start offering full packages of mobile, broadband and TV.
The Vodafone talks over asset swaps foundered over differences on valuing the two companies' businesses in western Europe. But the strategic imperative hasn't gone away. Malone would love some of Vodafone's mobile businesses, while Vodafone is keen on his broadband and TV assets. One thing that might remove some of the logic would be if the companies find other European deals, for instance if Deutsche Telekom sold its Dutch T-Mobile unit to Malone.
The Cable & Wireless deal is more than a distraction. It might even presage the full separation of LiLac, the tracking stock for Liberty's Latin American and Caribbean business. But the rewards in a rapidly consolidating Europe mean that even unglamorous Newbury will retain its pull.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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