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Liberty agrees USD23bn Vodafone deal; hurricane impact continues to drag down LLA top line

9 May 2018

Liberty Global has agreed to sell its UPC/Unitymedia-branded operations in Germany, Hungary, Romania and the Czech Republic to Vodafone Group for a total enterprise value of approximately EUR19.0 billion (USD22.6 billion). The net cash proceeds of the transaction are expected to be EUR10.6 billion, with the group also noting that it would retain all cash generated by the four cable network/MVNO operators through closing whilst Vodafone will be acquiring the German business (Unitymedia) inclusive of its debt. Liberty’s announcement says that the transaction will be notified to the European Commission around mid-2019, with completion expected sometime in H2 2019. Liberty will treat the for-sale assets as ‘discontinued operations’ for accounting purposes from Q2 2018 onwards. As previously reported by TeleGeography’s CommsUpdate, the two British-headquartered groups sought a tie-up in 2015 but discussions collapsed after the parties failed to agree on valuations for certain assets. In February this year, however, Vodafone confirmed that it was in talks with Liberty regarding the potential acquisition of ‘overlapping continental European assets.’

Commenting on the transaction, Liberty Global CEO Mike Fries said: ‘In each of these markets, the combination of Liberty Global and Vodafone’s businesses will transform the competitive landscape and bring a new level of convergence to customers. Now more than ever, Europe needs strong competition from scaled national challengers willing and able to invest in next generation wireless, video and broadband services. Germany, for example, is dominated by one provider that controls over half the broadband market. As a result, innovation and investment lag other countries in Europe, impacting customer service, next-generation product deployment and broadband speeds. Even together, Liberty Global and Vodafone, whose cable networks don’t compete or overlap, will be half the size of the incumbent operator. It’s time to alter market dynamics by unleashing greater investment and competition.’

Liberty reported turnover of USD4.16 billion for the first three months of 2018 – an increase of 4.2% year-on-year – driven by rebased revenue growth in Germany (8.7%), the UK (5.2%) and Central and Eastern Europe (4.3%). Operating Cash Flow (OCF) grew by 4.7% y-o-y to USD1.90 billion, although adjusted Free Cash Flow (FCF) for the period was negative at USD625 million, widening from a loss of USD331 million in Q1 2017. The group counted a total of 45.8 million fixed RGUs across its footprint, alongside 6.5 million mobile subscriptions, representing increases of 59,200 and 51,900, respectively from Q4 2017.

On the other side of the Atlantic, Liberty Latin America (LLA) registered revenue of USD910 million; flat on a reported basis, but representing a decrease of 3.5% y-o-y from a rebased perspective. LLA attributed the decline primarily to the negative impact of hurricanes Irma and Maria last year. Indeed, OCF in Puerto Rico dropped from USD51.3 million in Q1 2017 to USD18.0 million for the period under review, offsetting rebased growth of 5.5% in Chile and 6.9% at Cable & Wireless (C&W). Total RGUs, meanwhile, were up 33,300 compared to the previous quarter at 5.23 million, whilst mobile subscriptions dropped 11,000 quarter-on-quarter to 3.62 million.

Chile, Czech Republic, Germany, Hungary, Puerto Rico, Romania, United Kingdom, United States, Liberty Global, Liberty Latin America (LLA), Unitymedia, UPC Ceska Republika (part of Vodafone), UPC Hungary (part of Vodafone), UPC Romania (became part of Vodafone), Vodafone Group, Vodafone Hungary

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