Liberty Media Loads Up In Europe
biz.yahoo.com
By Todd Jatras
John Malone's Liberty Media Group has agreed to pay an undisclosed amount, reported to be somewhere in a range of $2 billion to $4.6 billion, for a 55% stake in six German cable television networks owned by Deutsche Telekom. The deal brings with it 10 million cable subscribers and gives Liberty a total of 42 million subscribers worldwide with 20 million of them in Europe.
Germany is the second-largest television market in the world after the U.S. The cable operations in question (in the German states of Bavaria, Berlin, Brandenburg, Bremen, Hamburg, Lower Saxony, Rhineland Palatinate, Saar, Saxony, Saxony Anhalt, Schleswig-Holstein and Thuringia) pass 15 million homes and boast a 68% penetration rate.
Liberty (Nasdaq: LMGA - news) and its partner in the deal, Klesch & Company, a London-based private equity firm, reportedly have an option to acquire an additional 20% stake in the operation. Malone refused to release figures at a conference call today on the exact relationship between Liberty and Klesch, but he said that such information and the numbers on the transaction will be available in about two months.
The deal comes at a particularly bad time for Deutsche Telekom (NYSE: DT - news), which is struggling to manage a crushing debt load approaching $60 billion but has abandoned the hope of significantly reducing it through a spinoff of its wireless unit after a similar deal by France Telecom bombed two weeks ago. At least one analyst today was extremely skeptical about Telekom's ability to cut its debt to acceptable levels. The company needs to cut that figure by at least half to avoid a rating downgrade from Moody's, which is considering lowering its bond rating on DT to ``low single A'' if that level of debt reduction is not reached.
The prospects look gloomy for Deutsche Telekom. Yesterday it announced it will sell its 11% stake in Sprint FON (NYSE: FON - news), which should net $2 billion and will dispose of its 11% stake in Sprint PCS (NYSE: PCS - news) by the fourth quarter for an expected $2.2 billion. Telekom is also considering a plan to sell off real estate holdings in Germany. Under that plan, which could reportedly net another $5 billion, the company would sell office buildings in major cities and relocate employees to lower-cost outlying areas.
On the flip side, Liberty appears to have a much brighter future as it rapidly expands its broadband and telecom portfolio. The Englewood, Colo.-based company also revised its investment in UnitedGlobalCom today, adding $1.4 billion to the $7 billion it invested last year and restructuring several of its agreements for cable operations in Europe, Latin America and Australia. Outside of the U.K., UnitedGlobalCom is the largest cable provider in Europe.
Malone said, ``We start life in Germany with a strongly positive cash-flow business. The German cable assets that we acquired have hundreds of millions in annual cash flow.'' Of course, it's hard to accurately gauge the deal until the numbers are released in a couple of months.
Cynthia Brumfield, president of broadband intelligence at Bethesda, MD-based Broadband Daily, points out that John Malone rarely if ever makes bad deals when it comes to cable. ``Malone knows more about this than any human being on the planet,'' she says. ``Unbeknownst to most of the world, they are already the dominant broadband provider in the world and the deals today only reinforce that.''
Not only is Malone a shrewd dealmaker but he's also one of the best at leveraging cable assets, consolidating them through complex partnerships and integrating them into a robust broadband strategy. ``Malone is famous for building scale economics. Just look at he did with TCI, which he sold to AT&T (NYSE: T - news),'' says Brumfield.
Liberty has complex cable deals going in nearly every significant European market and is clearly becoming the leading cable consolidator in Europe. Its investments today show that it is serious about pan-European broadband dominance and will leverage its expanding assets into a full spectrum of voice, data and television offerings. |
