Vodafone Closes $21.3 Billion Liberty Global Deal

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Vodafone CEO Nick Read

The wireless giant says it will become "Europe's leading converged operator, with 116.3 million mobile customers, 24.2 million broadband customers and 22.1 million TV customers across 13 European countries."

European wireless giant Vodafone Group has completed its $21.3 billion acquisition of  Liberty Global’s cable systems in Germany, Hungary, Romania and the Czech Republic, boosting its pay TV business. 

Liberty Global on Wednesday confirmed the transaction that will net John Malone's media company around $11.3 billion in proceeds.

Vodafone previously cited a deal value of €18.4 billion ($20.7 billion), while Liberty Global focused on the deal's enterprise value of approximately €19.0 billion ($21.5 billion) on a U.S. accounting basis.

The two companies in May unveiled an agreement for Liberty Global to sell its businesses in Germany and Eastern Europe to Vodafone, which is the world’s second-largest wireless company in terms of subscribers, with the European Union recently giving its approval for the takeover with conditions.

Vodafone said that it will become "Europe's leading converged operator, with 116.3 million mobile customers, 24.2 million broadband customers and 22.1 million TV customers across 13 European countries." Simon Murray, principal analyst at Digital TV Research, estimates that Vodafone will be the second-largest multi-national pay TV operator in the world by 2024 with 22.5 million pay TV subscribers behind AT&T.

And Liberty Global, led by CEO Mike Fries, previously highlighted: "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."

Vodafone management has touted the deal as transformative. “We are about to complete the major strategic acquisition of Liberty’s assets transforming the group into a converged European leader with an increased exposure to growing fixed and converged revenues and the opportunity to capture large cost synergies," Vodafone CEO Nick Read said Friday on the company's earnings conference call. "With the addition of 17 million cable homes in Germany and Central Europe, we’ve become Europe’s largest owner of gigabit capable next-generation network infrastructure."

It will also boost the importance the pay TV business plays inside Vodafone. Said CFO Margherita Della Valle: "You will hear me talk increasingly about our TV performance."

The Vodafone deal will make U.K. cable giant Virgin Media
 Liberty Global's core asset. Pivotal Research Group analyst Jeffrey Wlodarczak in a recent report highlighted that the sale will bring Liberty Global $11 billion in cash with another $3 billion if a planned Swiss sale closes later in the year. That compares with a market valuation of about $19 billion, leading the analyst to call Liberty Global the "cheapest stock in cable globally."

Said Wlodarczak: "We don’t view the investment thesis on Liberty Global as complicated. The core business (assuming the Switzerland deal closes) appears too cheap (with a reasonable chance they can sell the remaining business long term — especially if Vodafone can continue to prove out that the quad-play strategy works — at a likely significant premium to the current implied price." 

What will Liberty Global do with the cash? The analyst said "the most logical avenue for that cash are share repurchases and to a lesser extent deals." Added Wlodarczak: "We remind investors that Liberty overall has an excellent track record at generating significant value through M&A, they are unlikely to pursue deals for deals' sake although in my view management will be hard pressed at these valuation levels not to direct a material portion of excess cash at share repurchases."