Europe's cable sector braces for more deals

by Reuters
Wednesday, 29 January 2014 07:36 GMT

* Spain's Ono in the sights of Vodafone, Liberty Global

* Europe's cable sector thriving because of broadband

* Private-equity backed cable groups study IPOs, sales

By Leila Abboud, Arno Schuetze and Sophie Sassard

Jan 28 (Reuters) - Europe's booming cable sector is set for another round of deal-making as the private-equity owners of cable companies in Spain, Sweden and Norway head for the exit and giants like Vodafone and Liberty Global compete for targets.

Ono, Spain's largest cable group, has become subject to a bidding war between Vodafone and Liberty Global and talks with its private equity owners are ongoing, said two people familiar with the situation on Tuesday.

Ono had been planning an initial public offering (IPO) this year, but it may be pre-empted by a bid of at least 7 billion euros ($9.6 billion), or 10 times its 2012 operating profit, bankers said.

Ono's main shareholders are U.S. funds CCMP Capital, Providence Equity Partners, Thomas H. Lee Partners and Quadrangle Capital Partners.

Unlike Europe's telecom operators, cable firms have posted strong sales growth in recent years by expanding into superfast broadband. Their networks, designed to deliver TV to homes, have been upgraded to carry voice calls and Internet at speeds often five times faster than telcos'.

The sector has also matured from a fragmented market in which there were often multiple companies in each country to one where Liberty Global, backed by U.S. tycoon John Malone, is the cross-border leader, alongside a few national groups like France's Numericable.

Private equity firms have played a leading role in the rationalisation of Europe's cable market in the past decade, and those remaining are looking to cash in their investments.

"In these times of high stock market valuations, every owner of a cable company will have a deep think on whether an exit makes sense now," said one of the bankers.

"For strategic buyers, it may be one of the last opportunities to snap up an asset."


Other cable IPOs coming down the pike could include Sweden's Com Hem, owned by BC Partners, Norway's Get AS, owned by Goldman Sachs and Quadrangle, and Galicia, Spain-based R, owned by CVC, said banking sources.

These groups are aiming to surf on investor interest in cable, which is especially strong after three of Europe's biggest listed cable companies have been bought out and are no longer open to equity investors.

Liberty has taken two listed companies - Britain's Virgin Media for $16 billion last year and Holland's Ziggo for $6.7 billion on Monday - off the table. Vodafone also beat out Liberty to buy Germany's biggest cable group Kabel Deutschland for 7.7 billion euros last year.

Some analysts say Liberty could go further by buying the remaining 42 percent of Belgian cable operator Telenet that it does not already own. It tried last year but its 2 billion euro bid was rejected.

The relative scarcity of cable assets allowed France's Numericable to pull off a successful listing that valued the company at around 3 billion euros in November. Its parent, the holding company Altice, is finalising its own IPO this week, and is set to start trading its shares on Friday.

Patrick Drahi, the cable entrepreneur behind Numericable and Altice, hopes the twin listings will give him the financial muscle to achieve his dream deal - a merger with France's second largest mobile operator, SFR.

Drahi and SFR owner Vivendi discussed such a deal last year but talks foundered over price. As SFR prepares its own IPO slated for next summer, Drahi wants to restart discussions, though it remains unclear if Vivendi is willing.

In any case, Drahi's Altice listing will be buoyed by high cable valuations. According to Thomson Reuters data, France's Numericable is trading at 9.4 times core profit, Belgium's Telenet at 10.1, and Holland's Ziggo at 10.7.

"Now is the time to act," said the banker.

"Valuations are sky high, investor demand for these assets is huge. KDG, Ziggo, Numericable - and likely Altice - all show that they sell very well in an IPO."

Whether Ono makes it to IPO will depend largely on how much suitors Vodafone and Liberty are willing to bid. Analysts believe Vodafone can outbid Liberty since it would reap some cost savings from the deal, and also has far more cash at its disposal give its recent sale of a stake in U.S. mobile operator Verizon Wireless.

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