3.Acquisition History
3.1 Timeline
Liberty Global erupted in 2005 from the merger between Liberty Media and UGC. That same year, the company made several acquisitions throughout Europe: The largest cable company in Romania namely Astral Telecom SA, the largest broadband cable operator in Switzerland namely UPC Cablecom and some other small players. The following year, Liberty Global acquired Karneval Media, the second largest cable operator in the Czech Republic, which is in line with their strategy to acquire important European cable operators. Most of these companies were brought under one pan-European telecommunications unit namely UPC. Other operations like the distribution of TV-channels and video services became part of Chellomedia.
During the crisis, the consolidation within the industry was halted. Only in late 2009, Liberty Global pursued another acquisition. The media group wanted to gain a foothold in Germany for a long time since it already tried to purchase the entire cable networks of Deutsche Telekom back in 2002. Therefore it ventured a takeover of Unitymedia, Germany’s number two cable operator, for $3.3 billion. According to their own estimates, Liberty Global paid 7.4 times the estimated Adjusted EBITDA1 for 2010 or when fully integrating the expected synergies, the company would have paid 6.6 times the estimated 2010 Adjusted EBITDA.
Liberty Global continued to consolidate the industry by acquiring Aster, one of Poland’s leading cable operators for $796 billion. The following year, Kabel BW, Germany’s number three cable TV operator, was the next target. The company was bought for $4.4 billion the unit was merged with Unitymedia. Next, in an attempt to fully control the Telenet Group, Liberty Global unsuccessfully launched a takeover on September 20th 2012. Nevertheless, it was able to increase its stake from 50.1% to 58.4%. Last year, Virgin Media, a U.K. based Telecommunications Company and owned by Richard Branson, was purchased by Liberty Global for an amount of $16 billion. The purchase price was valued at a multiple of 8.8 times Virgin Media’s 2012 EBITDA, and 7.0 times Virgin Media’s 2013 estimated EBITDA, after taking into account the expected annual synergies of $110 million that may be realized following full integration. This major transaction did not satisfy the hunger of John Malone as he further explored the market to consolidate the industry. In June, the same month of the completion of the Virgin Media deal, Liberty Global entered a bid war with Vodafone to acquire Kabel Deutschland Holding, which it eventually lost.
In the process of reorienting its strategy, Liberty Global agreed to sell the Chellomedia for $1 billion. However, the company retained its Dutch operations. This cash inflow provided additional possibilities for further expansion. Consequently, on January the 27th, Liberty Global announced to fully acquire the remaining shares of Ziggo, a Dutch cable provider, in another major deal worth 10 billion euros. Together with its UPC operations in the Netherlands, Liberty Global now controlled 90% of the Dutch market.
Furthermore, the media group increased its stake in the Chilean subsidiary VTR from 80% to 100% in March. At the same time, Liberty Global announced that the Latin American activities were not core to the Group and is therefore trying to sell VTR and the Liberty Puerto Rico.
3.2 Acquisition style
Some of Liberty Global’s acquisitions have been executed in stages. In acquiring Ziggo, Liberty Global first took a stake of 12,7% in March 2013 from Barclays. This stake was built up to 28,5% in July 2013. If the group had possessed more than 30% of Ziggo, it would have been obliged to launch an offer on the remaining shares, which it didn’t want at the time. Only later, in January 2014, Liberty Global announced it would launch an offer to acquire the remaining free float of Ziggo. A similar story is applicable for Telenet where Liberty Global had increased its stake from 50,1% to 58,7% and aims to fully control the company. Furthermore, this month, Liberty Global announced to acquire the remaining 20% stake of VTR, the Chilean telecommunications subsidiary. The reason behind this approach is that it is cheaper to increase your stake unnoticed at the market price instead of paying a premium when a full takeover bid has to be launched.
Most small transactions in the past have been paid purely in cash, financed by the combination of issuing debt and using the liquidity within the target and acquiring company. Only in the major transactions, there is also a stock component in the purchase bid as Liberty Global is not able to finance the whole amount with cash through existing liquidity or debt. The share price of Liberty Global could also be seen as overvalued by the management. They can exploit this by offering the high price of their shares in an acquisition deal.
Similar to other billionaire entrepreneurs, John Malone wants to increase its business empire and gain more prestige. However, John Malone seems to be rational and only offers a fair price for an acquisition unlike Richard Branson or Mark Zuckerberg who are willing to pay any price for a target they want to acquire. The extravagant $19 billion purchase of Whatsapp is a very nice example. John Malone has offered a bid for Telenet shareholders and got refused. However, it is important to notice that he didn’t increase his bid although he has the financial power.
3.3 The impact of the acquisitions
3.3.1.The impact on share price
It is clear on the chart that the acquisitions paid off on the long term, Liberty Global managed to increase its share price from the all time low of $5 in 2009 to the all time high of $45 in 2014, which is approximately double the price of the peak price before the crisis. Moreover, on November 13th 2009, investors did not appreciate the acquisition of Unity Media as shares of Liberty Global were down 9.4 percent. Some analysts questioned whether there was enough future growth at the German company to justify the price. Of course, the evolution of the share price cannot solely be explained by Liberty Global’s acquisition strategy but it is clear that the company’s rapid expansion over the last couple of years has contributed to value creation and that investors believe that the strategy will eventually benefit them in the long run.
3.3.2.The impact om market position
Liberty Global aims to be the first or second in every market. The company is market player number one in 9 out of 12 European countries it is operating in. Nevertheless, there is a downside namely the antitrust measures. In the past, Liberty Global already encountered antitrust regulation procedure in which the deal to acquire Kabel BW was blocked. The acquisition of Virgin Media was also investigated to see whether competition is harmed by the deal. Eventually, it was not. Liberty Global encounters antitrust opposition very recently. The European Commission has issued an antitrust investigation for the Dutch cable market against Liberty Global, as it possesses 90% of the Dutch market share after the acquisition of Ziggo.
Due to aggressive financial policy and the leveraging of acquisition deals, the credit risk of Liberty global could increase and have a negative impact on the financing capabilities of the company. After the Virgin Media acquisition, the credit rating of the latter was downgraded due to the leveraging of the company. Consequently, Liberty Global will have to pay a higher price when it issues new bonds to finance another acquisitions.