- Enterprise value of €19.0 billion
($22.7 billion) on a U.S. GAAP basis1 (€18.4 billion on an EU-IFRS
basis)
- Represents 28% of Liberty Global’s 2017
consolidated OCF2
- Values all four businesses combined at
11.5x3 2017 adjusted Segment OCF and implies a 12.0x multiple for
Germany
- Cash proceeds expected to be €10.6
billion4 ($12.7 billion), plus Liberty to retain all cash generated
from the four businesses through closing
- Customers in each market to benefit
from stronger converged competitor focused on fixed and mobile
investment and innovation
Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and
LBTYK) today announced that it has entered into a definitive
agreement to sell its operations in Germany, Hungary, Romania and
the Czech Republic to Vodafone Group plc (“Vodafone”) for a total
enterprise value of approximately €19.0 billion ($22.7 billion) on
U.S. GAAP basis, as compared to €18.4 billion ($22 billion) on an
EU-IFRS basis.
These four businesses represented approximately 28% of Liberty
Global’s consolidated 2017 operating cash flow (“OCF”), which does
not include its 50% share of OCF from the VodafoneZiggo joint
venture in the Netherlands.
The sale price represents a total enterprise value for all four
businesses combined of 11.5 times 2017 adjusted Segment OCF, or
approximately 24.0 times 2017 operating free cash flow (“OFCF”)5,
with an implied adjusted Segment OCF multiple for Liberty Global’s
German operation of 12.0 times.
The transaction will be notifiable to the European Commission
for regulatory approval, which is expected to occur mid-2019.
After completion of the transaction, Liberty Global will
continue to be Europe’s leading cable television and broadband
provider, with consolidated operations in the United Kingdom,
Ireland, Belgium, Switzerland, Poland and Slovakia. Together, these
country operations reach 24 million homes, account for 26 million
video, broadband and fixed-line telephony subscribers and 6 million
mobile services. In addition, Liberty Global owns 50% of
VodafoneZiggo, a joint venture in the Netherlands with 4 million
customers subscribing to 10 million fixed-line and 5 million mobile
services.
Mike Fries, Chief Executive Officer of Liberty Global,
commented: “We have a rich history at Liberty Global of
successfully developing and reshaping our business to drive
innovation, advance customer services and create significant value
for shareholders. This is one of those moments. The
transaction appropriately values our core cable operations at a
double digit OCF multiple and will deliver €10.6 billion ($12.7
billion) of estimated cash proceeds to Liberty Global. Plus, we
will retain all cash generated from the four businesses through
closing. In Germany alone, which we value at 12 times 2017 adjusted
Segment OCF, we will have generated over six times6 our original
investment, supported by exceptional operating performance over the
last seven years during which we grew revenue 60% and OCF 82%7.
“This is also an important and exciting transaction for our
customers and employees. In each of these markets, the combination
of Liberty Global and Vodafone’s businesses will transform the
competitive landscape and bring a new level of convergence to
customers. Now more than ever, Europe needs strong competition from
scaled national challengers willing and able to invest in
next-generation wireless, video and broadband services.
“Germany, for example, is dominated by one provider that
controls over half the broadband market8. As a result, innovation
and investment lag other countries in Europe, impacting customer
service, next-generation product deployment and broadband speeds.
Even together, Liberty Global and Vodafone, whose cable networks
don’t compete or overlap, will be half the size of the incumbent
operator. It’s time to alter market dynamics by unleashing greater
investment and competition.”
Given the time between signing and closing, the use of proceeds
from the sale will be determined in due course and are expected to
provide significant additional flexibility to optimize growth and
shareholder returns. Of note, Vodafone will be acquiring the German
business inclusive of its debt. As currently structured, upon
closing, a change of control will be triggered with respect to
Unitymedia’s debt, and lenders and bondholders will have an option
to put their debt to Vodafone.
Liberty Global has agreed to provide certain transitional
services for a period of up to four years. These services
principally comprise network and information technology-related
functions. The annual charges will depend on the actual level of
services required by Vodafone.
Beginning with our Q2 2018 reporting, we expect to treat the
assets being sold to Vodafone, as well as our Austrian business
that is being sold to Deutsche Telekom, as discontinued operations
for accounting purposes.
LionTree and Goldman Sachs are acting as financial advisers to
Liberty Global on the transaction.
Forward-Looking Statements and Disclaimer
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding our strategic outlook, the
anticipated timing of regulatory approvals and closing of the
transaction, the expected benefits of the transaction, the expected
use of net proceeds, expectations with respect to our continuing
operations and other information and statements that are not
historical fact. These forward-looking statements involve certain
risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by these statements.
These risks and uncertainties include the ability to obtain
regulatory approvals for the transaction, as well as achieve other
customary closing conditions, the ability of Vodafone to
successfully integrate the combined businesses impacted by the
transaction and achieve the anticipated benefits thereof, as well
as other factors detailed from time to time in Liberty Global’s
filings with the Securities and Exchange Commission including our
most recently filed Form 10-K and Form 10-Q. These forward-looking
statements speak only as of the date of this release. Liberty
Global expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in Liberty
Global’s expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
About Liberty Global
Liberty Global is the world’s largest international TV and
broadband company, with operations in 11 European countries under
the consumer brands Virgin Media, Unitymedia, Telenet and UPC. We
invest in the infrastructure and digital platforms that empower our
customers to make the most of the video, internet and
communications revolution. Our substantial scale and commitment to
innovation enable us to develop market-leading products delivered
through next-generation networks that connect 22 million customers
subscribing to 46 million TV, broadband internet and telephony
services. We also serve over 7 million mobile subscribers and offer
WiFi service through 12 million access points across our
footprint.
In addition, Liberty Global owns 50% of VodafoneZiggo, a joint
venture in the Netherlands with 4 million customers subscribing to
10 million fixed-line and 5 million mobile services, as well as
significant investments in ITV, All3Media, ITI Neovision, Casa
Systems, LionsGate, the Formula E racing series and several
regional sports networks.
Appendix
Adjusted Segment EBITDA is the primary measure used by
Unitymedia’s management to evaluate Unitymedia’s performance.
Adjusted Segment EBITDA is also a key factor that is used by
Unitymedia’s internal decision makers to evaluate the effectiveness
of Unitymedia’s management for purposes of annual and other
incentive compensation plans. Unitymedia defines EBITDA as earnings
before net finance expense, income taxes and depreciation and
amortization. As Unitymedia uses the term, Adjusted Segment EBITDA
is defined as EBITDA before share-based compensation, provisions
and provision releases related to significant litigation,
impairment, restructuring and other operating items and
related-party fees and allocations. Other operating items include
(i) gains and losses on the disposition of long-lived assets, (ii)
third-party costs directly associated with successful and
unsuccessful acquisitions and dispositions, including legal,
advisory and due diligence fees, as applicable, and (iii) other
acquisition-related items, such as gains and losses on the
settlement of contingent consideration. Unitymedia’s internal
decision makers believe Adjusted Segment EBITDA is a meaningful
measure because it represents a transparent view of Unitymedia’s
recurring operating performance that is unaffected by Unitymedia’s
capital structure and allows management to readily view operating
trends and identify strategies to improve operating performance.
Unitymedia believes the Adjusted Segment EBITDA measure is useful
to investors because it is one of the bases for comparing its
performance with the performance of other companies in the same or
similar industries, although its measure may not be directly
comparable to similar measures used by other companies. Adjusted
Segment EBITDA should be viewed as a measure of operating
performance that is a supplement to, and not a substitute for EBIT,
net earnings (loss), cash flow from operating activities and other
EU-IFRS or IASB-IFRS measures of income or cash flows.
A reconciliation of Germany’s net loss to Adjusted Segment
EBITDA under EU-IFRS is as follows:
Year endedDecember 31,
2010 (a)
2017
in millions
Net loss
€
(245.0
)
€
(4.0
)
Net financial and other expense
515.0
417.1
Income tax expense (benefit)
(57.8
)
58.5
Earnings before interest and taxes
212.2
471.6
Depreciation and amortization
560.4
795.5
Impairment, restructuring and other operating items, net
36.3
9.1
Share-based compensation expense
—
7.4
Related-party fees and allocations, net
23.8
234.3
Adjusted Segment EBITDA
€
832.7
€
1,517.9
______________
(a) Pro forma combined data for Unitymedia
and KBW.
__________________________________
1 Total enterprise value (“sales price”) is calculated on a U.S.
GAAP basis and does not include any outstanding indebtedness of the
UPC Holding borrowing group. Convenience translation at USD/EUR
rate of 1.1950. The primary difference between the U.S.
GAAP and EU-IFRS total enterprise value is the accounting for
certain network duct leases in Germany, which are treated as
capital leases under U.S. GAAP and operating leases under
EU-IFRS
2 Represents operating cash flow, as customarily defined by
Liberty Global
3 For the purpose of the purchase price multiple calculations,
the U.S. GAAP 2017 Segment OCF of Germany (€1,493 million) has been
reduced by €26 million and the combined U.S. GAAP 2017 Segment OCF
of Unitymedia, UPC Hungary, UPC Czech Republic and UPC Romania
(€1,714 million) has been reduced by €58 million, with
each reduction representing the allocable estimated net amount of
transitional services (excluding amounts related to costs expected
to be capitalized by Liberty Global) to be provided by Liberty
Global during the first year following closing. Segment OCF
represents the portion of Liberty Global’s consolidated OCF that is
attributed to the applicable business and gives pro forma effect to
the adoption of Accounting Standards Update (“ASU") No. 2014-09,
Revenue from Contracts with Customers. The Germany purchase price
multiple calculation is based on our estimate of the total
enterprise value that is attributable to Germany
4 The net cash proceeds represent the estimated cash proceeds to
be received by Liberty Global for the sale of all four businesses
after adjustments for the debt of Unitymedia and other debt-like
items (based on December 31, 2017 balances). Amount has not been
reduced to reflect any debt pay down within the UPC borrowing group
to ensure covenant compliance at closing
5 OFCF represents adjusted Segment OCF, as described above, less
property and equipment additions as customarily defined by Liberty
Global
6 This multiple is based on (i) a numerator that comprises
(a) the cash distributed by Unitymedia to Liberty Global from 2010
to 2017 (approximately €3.8 billion) and (b) our estimate of
net cash proceeds from this transaction allocable to Unitymedia
(after adjusting for Unitymedia's debt and debt-like items based on
December 31, 2017 balances) of €9.3 billion and (ii) a denominator
that comprises the combined cash purchase prices for Unitymedia
(acquired January 2010) and KBW (acquired December 2011) of €2.1
billion
7 The growth percentages are based on the pro forma combined
2010 revenue and Adjusted Segment EBITDA (which is defined
similarly to OCF) of Unitymedia and KBW, as compared to the
corresponding figures of Unitymedia for 2017, with all figures
based on EU-IFRS due to lack of available pro forma combined 2010
U.S. GAAP data. Adjusted Segment EBITDA, as customarily defined by
Unitymedia for purposes of separate reports it issues in connection
with the reporting requirements of its debt agreements, is defined
and reconciled in the Appendix of this release
8 Based on German broadband revenue market analysis
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180508006906/en/
For more information, please visit www.libertyglobal.com or
contact:Investor Relations:Matt
Coates, +44 20 8483 6333John Rea, +1 303 220 4238Stefan Halters, +1
303 784 4528orCorporate
Communications:Bill Myers, +1 303 437 5880Matt Beake,
+44 20 8483 6428
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