Liberty Global Grows in Germany


John Malone’s quest for
German cable domination came a
step closer to reality last week after
his Liberty Global agreed to purchase
that country’s No. 3 MSO,
KBW, for $4.48 billion.

Malone has attempted in the
past to become the dominant cable
operator in Germany — Europe’s
biggest television market
outside of the United Kingdom —
only to be thwarted by regulators.
In 2009, Liberty Global purchased
No. 2 German cabler Unitymedia
for $5.2 billion af ter Liberty
came up short in the bidding for
the country’s No. 1. MSO, Kabel

While Kabel Deutschland is still
at the top of Germany’s cable heap,
with 8.8 million homes, KBW’s 2.4
million customers and Unitymedia’s
4.6 million subscribers make Liberty Global a solid
No. 2.

KBW (also known as Kabel BW), owned by Swedish
private-equity firm EQT, went on the block last year. Bidders
for the properties included Kabel Deutschland and
private-equity giant CVC Capital Partners. According to
a Reuters report, CVC Capital Partners
originally had the highest bid,
but Liberty Global lobbed in a higher
offer over the weekend which
CVC declined to beat.

KBW operates in one of the more
affluent regions in Germany —
Baden-Wurttemburg, one of the
highest per-capita income areas in
the country — and is close to Unity
Media systems in the German
states of Hesse and North Rhine-

“Given management’s outsized
recent success at acquisitions and
dispositions we believe that Liberty
management is unlikely to do
a dumb deal and there will potentially
be quite significant growth
(boosted by material synergies) out
of KBW,” Pivotal Research Group
principal and media & communications
analyst Jeff Wlodarczak wrote
in a report. “We believe management
deserves the benefit of the doubt here.”

Morgan Stanley media analyst Ben Swinburne wrote in
a report that KBW will boost Unity Media’s subscriber base
by 50% and its cash flow generation by 60%. He estimated
that KBW reported 22% cash flow growth in 2010.

The $4.48 billion purchase price works out to be about
8.1 times KBW’s estimated 2011 cash flow, making the valuation
on par with some recent private cable deals in the
United States, including Cablevision Systems’ $1.4 billion
acquisition of Bresnan Communications. The Bresnan
deal was valued at about 8.3 times cash flow when it closed
in December.

“This transaction provides us with further access to
one of the fastest-growing cable markets in Europe and
is fully aligned with our strategy of acquiring world
class cable operations that are accretive from a value
and growth perspective,” Liberty Global CEO Mike Fries
said in a statement.

The transaction, subject to regulatory approval, is expected
to close in the second half of 2011.