Liberty Makes Waves Across Pond


Liberty Media Corp. is making moves to re-enter the German cable market as part of a consortium of bidders for Deutsche Telekom AG's cable assets.

It's also talking with French media and environmental conglomerate Vivendi Universal S.A. about a possible combination of certain entertainment assets.

Liberty bid on the German cable systems — with about 3 million subscribers — last year, only to be rebuffed by regulators in that country. Now it has re-entered the fray with private equity firms Blackstone Group and Apollo Partners.

According to sources, Liberty is one of at least five other bidders for the German assets.

Published reports named Providence Equity Partners and Apax Partners; Goldman Sachs & Co., which has teamed up with private-equity house Primera; and London-based CVC Capital Partners with Warburg Pincus. Hicks Muse Tate & Furst and BC Partners are bidding individually.

Liberty's participation in the bidding is in line with company president Dob Bennett's comments during the company's second-quarter conference call on Aug. 15. During that call, Bennett said if Liberty were to bid on the German assets again "it would be as part of a consortium and at a lower price."

Liberty's rejected offer for the German cable properties was about $5.1 billion. Janco Partners Inc. analyst Matt Harrigan estimated that bidding prices for the German assets have dropped by at least $2 billion.


Sources last week also confirmed published reports that Liberty was in early discussions with Vivendi about combining its Starz Encore Group LLC and Discovery Communications Inc. assets with Vivendi Universal Entertainment, the U.S. media arm of the French conglomerate.

But sources last week stressed that no deal is imminent, and given Liberty's track record of backing out of deals at the last minute, it is possible that negotiations with Vivendi could fall apart as well.

Sources said that for now, the deal on the table would combine the assets and spin them off in a separate, publicly traded company. Vivendi, strapped for cash to help pay off its $19 billion in debt, would own 51 percent of the new enterprise.

Some sources in the financial community doubted the feasibility of a VUE deal, given that Liberty would likely have to give up the cash flows from Starz and Discovery if it were to take a minority interest in a reconstituted VUE.

"They [Liberty] have some big debts coming due," said one source in the investment community. "I don't see how taking Starz and Discovery public is going to get Liberty any money to pay off debt."

A VUE deal could make sense for Liberty, given certain circumstances, according to Harrigan.

"At some price it makes sense to house [Starz and Discovery] in a larger entity," he said. "Discovery has the best growth factor of any major cable network group. If you did an IPO of Discovery, it would be like an IPO of MTV Networks."

Harrigan added that any deal would hinge on a fair valuation of Discovery.

Vivendi has been under pressure for months to pare debt, mostly picked up in a wild acquisition spree by former chairman Jean-Marie Messier. New chairman Jean-Rene Fourtou announced a plan to dispose of about $9.8 billion in assets, including Vivendi's Houghton-Mifflin publishing division, and has secured about $2 billion in financing.

In a letter to shareholders Aug. 18, Fourtou stressed that VUE was not for sale. But as Vivendi might own 51 percent of a new VUE, that would still be technically true.