Liberty Global Inc. (LBTYA), a leading global cable TV and diversified broadband services provider, recently raised its bid in the auction for Kabel Baden-Wuerttemberg GmbH & Co KG, the third largest cable operator in Germany. In the initial bidding process, Liberty Global was outbid by CVC Capital Partner, which offered around $4.17 billion for Kabel Baden. However, Liberty Global raised its second bid to approximately $4.4 billion. CVC has to submit a counter bid latest by Monday (March 21, 2011) if it wants to do that. Hellman & Friedman was the third bidder but it failed in the first round.
Kabel Baden is a privately held cable MSO controlled by the Swedish private equity firm EQT Partners AB. The company has more than 2.3 million subscribers. If Liberty Global become successful to acquire Kabel Baden, than this will be the company’s second major acquisition in Germany within a year after its acquisition of Unitymedia GmbH, the second largest cable TV operator in Germany.
Throughout 2010, Liberty Global has taken several strategic measures to restructure its operations. In January 2010, the company purchased Unitymedia for approximately $5.7 million. At the same time, Liberty Global sold its entire ownership interest of J:COM Japan to KDDI Corp. for pre-tax net proceeds of approximately $3.1 billion.
In December 2010, Liberty Global entered into an agreement with London-based private equity firm Mid Europa Partners LLP to acquire 100% stake of Aster Sp. Z.o.o. for around $805 million. Aster is the fourth largest cable TV operator in Poland. The deal is subject to the approval of Polish regulatory authority and is likely to close by mid-2011.
Germany is one of the lucrative markets in Europe. The country is witnessing growing demand for pay-TV services together with triple-play bundled services that combines basic cable TV, Internet, and telephony. However, several industry researchers are concerned regarding the fact that Liberty Global may face strict regulatory approval since this merger will imply the unification of the second and third largest cable TV service provider in Germany, which may significantly damage competitive atmosphere.
Libert Global’s closest rivals are BT Group Plc. (BT), Eutelsat Communications, SES S.A. and CATV Systems. We maintain our long-term Underperform recommendation for Librty Global. This is based on its current valuation, which has moved up by nearly 80% in the last year. Currently, it holds a short-term Zacks #5 (Strong Sell) on the stock.
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