European telecommunications companies may well follow cable’s lead on acquisitions. The latest in a string of cable tie-ups sees Liberty Global, John Malone’s consolidator, take full control of its Dutch rival Ziggo for 10 billion euros ($13.7 billion) including debt. Among telecommunications companies, deal making has proved trickier. But here, too, activity should start to rise.
After a long pursuit, the cash and shares purchase of Ziggo comes at a rich-looking enterprise value of 11.3 times last year’s earnings before interest, taxes, depreciation and amortization. That is offset by significant synergies and the lower cost of Liberty’s existing 28.5 percent stake. Adjusted for these factors, Liberty arrives at a less punishing 9.3 times 2014 Ebitda.
Cable is in a sweet spot: cash generating, technologically strong and with little regulatory interference. So Liberty Global â€" fueled by cheap debt and an ardent belief in the benefits of scale â€" has been gobbling up assets. The sector has also proved attractive to mobile groups. Owning cable assets is useful as customers increasingly buy bundled television, phone and broadband, and as exploding data usage strains mobile network capacity. Hence Vodafone’s takeover of Kabel Deutschland last year.
So expect more deal making. In France, the recently listed Numericable could join with mobile group SFR, once the SFR spins out of Vivendi. Bloomberg and Expansion say Vodafone is keen on Ono, a Spanish group that is preparing for an initial public offering.
Life has been much trickier for traditional telecommunications companies. But here, too, acquisitions are likely to pick up. Europe’s regulators belatedly realize a strategically important sector is ailing and requires a more pragmatic stance on mergers. A pending German mobile merger, if permitted, might set off further in-market consolidation in Italy, Sweden, France or Britain.
Major cross-border mergers and acquisitions could return, too. The obvious move is for AT&T, loudly talking up its interest in Europe, to bid for Vodafone, once the Vodafone completes its exit from Verizon Wireless. A denial on Monday came at the urging of Britain’s Takeover Panel after reports of exploratory meetings with regulators. That upset an emerging consensus. But no other target offers the same blend of scale, mobile focus and freedom from political interference. And AT&T’s statement says it cannot make an offer for only six months.
Quentin Webb is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
