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Long calls

27 January 2014 By Quentin Webb

European telecoms will follow cable’s lead on M&A. The latest in a string of cable tie-ups sees Liberty Global, John Malone’s sector consolidator, take full control of Dutch rival Ziggo for 10 billion euros ($13.7 billion) including debt. In telecoms, deal-making has proved trickier. But here, too, activity should start to rise.

After a long pursuit, the cash-and-shares purchase of Ziggo comes at a rich-looking enterprise value of 11.3 times last year’s EBITDA. That is offset by significant synergies and the lower cost of Liberty’s existing 28.5 percent stake. Adjusted for these factors, Liberty arrives at a less punishing 9.3 times 2014 EBITDA.

Cable is in a sweet spot: cash-generative, technologically strong, and with little regulatory interference. So Liberty Global – fuelled by cheap debt and an ardent belief in the benefits of scale – has been gobbling up assets. The sector has also proved attractive to mobile groups. Owning cable assets is useful as customers increasingly buy bundled TV, phone and broadband, and as exploding data usage strains mobile network capacity. Hence Vodafone’s takeover of Kabel Deutschland last year.

So expect more deal-making. In France, the recently listed Numericable could join with mobile group SFR, once the latter spins out of Vivendi. Bloomberg and Expansion say Vodafone is keen on Ono, a Spanish group which is preparing to float.

Life has been much trickier for traditional telecoms. But here too, acquisitions are likely to pick up. Europe’s regulators belatedly realise a strategically important sector is ailing, and requires a more pragmatic stance on mergers. A pending German mobile merger, if permitted, might catalyse further in-market consolidation in Italy, Sweden, France or Britain.

Major cross-border M&A could return too. The obvious move is for AT&T, loudly talking up its interest in Europe, to bid for Vodafone, once the latter completes its exit from Verizon Wireless. A denial on Jan. 27 came at the urging of Britain’s Takeover Panel following reports of exploratory meetings with regulators. That upset an emerging consensus. But no other target offers the same blend of scale, mobile focus, and freedom from political interference. And AT&T’s statement leaves it offside for only six months.

 

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