Liberty Global Purchases 13% of Ziggo: Synergies Galore

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Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB) has announced the acquisition of a 13% stake in Dutch cable operator Ziggo NV (AMS:ZIGGO) at €25/share. Ziggo passes 56% of Dutch households, LBTYA a further 38% through their UPC subsidiary. However, they believe a full bid for Ziggo is unlikely near term, given LBTYA’s balance sheet is substantially committed to the (pending) Virgin Media Inc. (NASDAQ:VMED) (LON:VMED) acquisition. LBTYA’s presence in the shareholder list would appear to provide support for Ziggo’s share price, albeit raising the bar for any counterbid from 3rd parties.

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Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB) has announced a (seemingly opportunistic) acquisition of a 12.65% stake in Ziggo NV (AMS:ZIGGO), at €25/share, for a total consideration of €632.5m/$810m. The seller had been left with a stake in Ziggo after a 20% secondary placing at €25.05 generated limited interest.

Anti-trust issues

The main issue for Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB) in such a scenario could be, an objection by the competition authority to any consolidation of the cable industry in the Netherlands. A merger of all Dutch cable assets could lead to a duopoly with KPN in fixed which could be seen as negative for Dutch broadcasters and consumers. Liberty could get approval to consolidate Dutch cable as its networks currently don’t overlap and Liberty could offer some wholesale access to cable infrastructure.

Timing a surprise

Although  the move by LGI to acquire a minority stake in Ziggo NV (AMS:ZIGGO) should not come as a complete surprise, with opportunistic M&A being part of LGI’s business strategy, the timing may be considered surprising, with LGI still focused on completing its acquisition of Virgin Media Inc. (NASDAQ:VMED) (LON:VMED).


Rene Obermann the current CEO of Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE) is to become the new CEO of Ziggo in January 2014 but some believe that this long transition could be accelerated.


Unsurprisingly, analysts see ‘significant synergies’ in the deal.

J.P. Morgan believes that “Over time there would appear to be significant synergies available through a full buyout of Ziggo (historic LBTYA acquisitions suggests 0.5-1.0x turns of EBITDA synergies might be available, vs. Ziggo ‘13e EBITDA of €0.9bn). Ziggo passes 56% of households in the Netherlands, Liberty Global 38% through its UPC business, however, given the ‘patchwork’ coverage of the respective cable networks (unlike other operators, which typically have large regions of contiguous coverage) synergies could be even higher.”

Citigroup notes:

“Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB) tried recently to buy all the remaining shares it didn’t own in Telenet Group Holding NV (EBR:TNET) but failed. We also note previous press speculation that Liberty would bid for Ziggo (Reuters, Feb 2013. Liberty has made no specific comment on this); we would expect Liberty to remain disciplined and patient if it were to decide to increase its stake in both Ziggo NV (AMS:ZIGGO) and Telenet over time. Merging Ziggo with Liberty’s other cable assets in the Netherlands would create most synergies as together it would provide Liberty with a nationwide coverage of the Netherlands (see figure overleaf). Merging Telenet with Ziggo could also generate significant synergies (e.g. consolidate Dutch speaking call centres, network maintenance etc).”

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