Consolidation fever, in full swing in the U.S., is beginning to make its way over to Europe as major telecom players like Vodafone and BT (formerly British Telecom) move to snap up cable companies, making traditional consolidators like Liberty Global seem more prey than predator.
Liberty Global is the largest cable operator in Europe, with 27 million subscribers, and has spent the past few years adding to its portfolio.
Deals like its 2013 purchase of Virgin Media for $16 billion, making it the largest cable operator in the U.K, and the 2011 acquisition of German cable company KBW for $4.48 billion, cementing its status as the No. 2 MSO there, helped secure its status as the continent’s dominant cable operator.
LGI also agreed to buy the remaining interest in Dutch cable operator Ziggo it didn’t already own for $13.7 billion.
While Liberty has been quiet on the deal front since the Ziggo announcement this past January, it’s been trying. It lost out twice to U.K. mobile phone behemoth Vodafone on high-profile deals: buying Kabel Deutschland, Germany’s largest cable operator ($10 billion) and Ono, Spain’s largest cable operator ($8.9 billion).
Now, Vodafone is hunting for even more cable properties in the wake of BT’s preliminary talks with mobile carriers O2 (a unit of Spain’s Telefónica) and EE (a joint venture between Deutsche Telekom and France’s Orange).
Liberty Global could find itself even further out of the mix.
As a result, Liberty Global has been identified as a potential takeover target, with Vodafone reportedly investigating the feasibility of a deal.
Most analysts believe a takeover of LGI is possible, but it would be for a high price. Some estimates value a Liberty Global purchase at about $91 billion — which would seem to be a bit of an overreaction to a potential BT-O2 pairing valued at about $15 billion.
Liberty Global declined to comment. Reports say Vodafone CEO Vittorio Colao, at an investor meeting in England, denied planning a takeover of Liberty Global, though he’d entertain the idea of an acquisition of LGI’s German properties. Elevation LLC media analyst Steve Sweeney said in a note to clients that while a deal isn’t particularly likely, “we have probably not heard the last of the chatter regarding a potential [Liberty Global-Vodafone] deal.”
Liberty Global and its chairman, John Malone, could sell to Vodafone at the right price, but face no pressure to do so, Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said.
“Liberty Global is in the first inning of attacking the business opportunity, the second inning of their wireless MVNO [mobile virtual network operator] strategy, have plenty of growth left in core markets such as Germany and are in the early stages of synergy benefits in U.K. and Netherlands,” Wlodarczak said.Liberty Global has been knee deep in the mobile waters. In 2012 it launched what it hopes to be a Pan-European mobile MVNO, cutting deals with several carriers to provide its own branded mobile service.
That’s why Wlodarczak doesn’t believe Liberty Global is particularly interested in wireless acquisitions. It’s having success with the MVNO product and, rapidly expanding its WiFi footprint, could use that technology to offer a dual mode phone service in the future if needed.
Consolidation among wireless carriers in Europe is going strong partly because competition is so fierce that operators want ways to differentiate their services.
SUPPLY AND DEMAND
As the deal volume climbs, so do the prices.
According to SNL Kagan, Vodafone paid about $10.6 billion for Kabel Deutschland’s 8 million customers in 2013, and a year later forked over $9.9 billion for Ono’s 800,000 subscribers.
Still, other parts of the continent are ripe for consolidation.
Kagan recently noted that Poland, which has 89% TV penetration, has an extremely fragmented cable market, with about 500 companies providing service. Only six of those providers serve 100,000 customers or more.
Opportunities for consolidation continue in France, Spain and Greece, with properties such as Bouygues Telecom, Jazztel and Nova attracting interest.
Liberty Global hasn’t been totally shut out of deals. After whiffing on Kabel Deutschland and Ono, it bought content assets, including production house All3Media in May with Discovery Communications for about $862 million and a 6.4% interest in the U.K’s top commercial broadcaster ITV for about $750 million.
“I still see lots of little deals for LGI,” Wlodarczak said, pointing to several smaller cable properties scattered across the continent that still could be ripe for the taking.