The business strategy of Liberty Global focuses on future growth mainly through beneficial mergers and acquisitions. With the mission to enhance and simplify people’s lives via meaningful innovation, they are constantly investing in their network and the development of their services. Throughout their acquisition history in Europe, they had to outbid with many competitors in order to consolidate the already fragmented telecommunications and cable sector. Due to the cash generating potentiality, the technological strength and the limited regulatory interference, this sector has attracted many telecommunications companies but also mobile groups. Currently, Europe is going through a series of battles between big players that target to control the market. Germany with the takeover of Kabel Deutschland by Vodafone, Netherlands with the takeover of Ziggo by Liberty Global and recently the acquisition of ONO in Spain by Vodafone are only few examples of the attempts for leadership in this sector. Consequently, after all these multibillion deals, regulators have raised concerns that the consumer choice may be limited and the prices that people pay for their cable and mobile services may be pushed up.
Liberty Global in its attempts to control the European telecommunication and cable sector has to face as main competitor, Vodafone, the British giant mobile group .The two companies, in order to expand their empires, have out bided each other in many deals such as the Kabel Deutschland, the Ziggo and quite recently, in the beginning of 2014, the ONO. Moreover, there is some speculation that both companies will make a bid for Fastweb in Italy. Due to the immense war between Vodafone and Liberty Global, the prices that are willing to pay are increasing and in most cases they end up acquiring their targets at historically high valuations. Despite the fact that the two companies share the same mission for leadership in the sector, they approach the deals in different way both from a strategic and a financial point of view. In the following paragraphs, the battles between the two companies for the deals mentioned above will be presented and the underlying reasons of the outcome will be analyzed.
Regarding the Kabel Deutschland case, Global Liberty initially made an offer to acquire the Munich-based company for about 85 EUR a share, the proposal valued the company at 7.5 bio EUR and consisted of shares and cash. Global Liberty had entered the German market by acquiring the Unitymedia (the second largest cable operator) in 2010 and the Kabel BW in 2012, consequently was targeting with this deal to enhance its position there. On the other hand, Vodafone had entered the German market when it acquired the phone company, Mannesmann AG. However, with this deal was targeting to gain access to more than 8.5 million connected households in Germany and attract more customers by providing bundled services of mobile, fixed-line, broadband and TV. From a strategic point of view, this deal would indicate the switch of Vodafone’s focus from the mobile towards the consumer broadband and television services, in order to provide the “quad-play” services that were becoming more and more popular.Vodafone’s proposal included the purchase price of 84.50 EUR per share plus a 2.50 EUR dividend, total valuation to buy the company for 7.7 bio EUR. The final takeover of Kabel Deutschland by Vodafone was derived by many parameters. Firstly, the higher price that Vodafone was willing to pay due to the huge amount of cash it received from selling its stake in Verizon Wireless venture in USA. Secondly, Vodafone was expecting with this deal cost and capital expenditure synergies of 300 mio EUR annually. Thirdly, the concerns regarding possible limitations from German authorities in Global’s Liberty already expanded activities in Germany. Moreover, extra pressure on the deal was added when the regional court in Germany reversed the antitrust regulator’s approval for Global‘s Liberty acquisition of KabelBW that threw the already completed merger into doubt.
After this failed attempt of Global Liberty in Germany, the company shifted its focus to another target and made a bid to fully acquire the Dutch cable company, Ziggo. As explained in the previous section, with this deal Liberty Global targeted to combine its existing Dutch operations of UPC with the Ziggo business .Vodafone tried to hamper the deal but due to the existing position of Liberty in Netherlands with UPC and the targeted synergies between the two companies, they were backed off the game quite early. Taking into account that at end of 2013 there were limited M&A opportunities left in northern Europe, the two empires turned their attention to southern Europe and after some signs of economic recovery they started examining future possible deals in Spain and Italy.
In Spain, the two giants are competing once again to acquire ONO, the Spain’s largest cable operator. As Spain is overcoming an economic slump, more and more companies are considering the possibility of an IPO and foreign investors are interested in buying assets there. In line with this trend, the shareholders of ONO were initially examining the possibility of an IPO. Consequently, the bids for the whole company should have been attractive enough compared with the valuation they could get in a listing. The interest of Vodafone in ONO was a strategic move since the group already owns a mobile-phone network and wanted to provide bundled services to its customers. However, the interest of Global Liberty was more financial since such a buyout would depend on whether ONO would boost earnings. Vodafone at that time, after selling its Verizon stake was sitting on a pile of cash and was willing to overpay for ONO. On the other hand, Global Liberty had recently paid 15.8 bio USD for Virgin Media and 10 bio EUR for Ziggo consequently, was not willing to over pay. On the 17 of March, Vodafone agreed to takeover ONO in a 7.2 bio EUR transaction after increasing its initial offer. A multiple of around 9.5 that Vodafone paid is considered to be rather high taking into account that ONO was not really growing but the Vodafone’s interest in proving bundled services in its customers in Spain combined with the pressure from the Global’s Liberty bid and the possible IPO resulted to this high price.
Italy and more specifically Fastweb, the broadband and pay-TV company owned by Zurich based Swisscom, has recently captured the attention of the two groups. Vodafone is already active in Italy with Tele2 that offers fixed services but is targeting with Fastweb to expand its operations. Vodafone has already made two informal offers for Fastweb in 2011 and 2013 but they have both been rejected by Swisscom. Global Liberty, has also made an informal offer for the company, however a recent announcement by the CFO of Swisscom stating that Fastweb is not for sale, puts a stop on all the speculations for possible acquisition. Whether, the CFO of Swisscom was targeting with this announcement to boost the competition between the two empires and eventually make them increase their offers or he was just being honest, is the big question for now.
After Global Liberty started its acquisitions spree in the European cable industry, companies from the traditional TV side and from the telecoms side started targeting the cable sector with the goal to provide all these services in one product solution. The starting points of all these changes in the European cable and telecommunications sector are the shift of the customer’s preferences towards all-in-all solutions (TV+ mobile +fixed lines+ Internet) combined with the recession in Europe, that resulted to price sensitive customers. Global Liberty and Vodafone, identified these shifts early enough and adjusted their strategies. The immense bidding war among them had resulted to both overpaying when acquiring their targets but also to a rather fragmented market. The future opportunities for takeovers are rather limited within Europe, consequently the main determinant factor of winning the battle or not, will be the willingness to pay.
4.2. WARREN BUFFET AND OTHER INVESTORS
Global’s Liberty recent acquisitions in Europe have set the base for the company’s potential future growth. Currently, the company is at a turning point for profitability since the negative earnings of 2013 are expected to be followed by positive EPS in 2014.Moreover ,Global Liberty is expected to grow significantly the next two years. This can explain the current investment of Warren Buffet’s investment company Berkshire Hathaway, in Global Liberty of about 2.95 million shares valued at 262 mio USD. At the same time, Berkshire reduced its stake in US in John Malone’s domestic US media group, Liberty Media, by 322,000 shares indicating the positive Warren Buffet’s outlook on Global Liberty in Europe.