Liberty Global has agreed to buy Ziggo, in a deal valuing the Dutch cable operator at EUR 10 billion. The merger of Ziggo with Liberty's Dutch subsidiary UPC will create the Netherlands' largest cable operator, with a network passing over 90 percent of homes in the Netherlands and counting more than 4 million customers. Liberty acquired a nearly 30 percent stake in Ziggo last year, and the two confirmed in December talks on a takeover.
The offer values Ziggo at EUR 34.53 per share, a premium of 22 percent compared to its price in mid-October when news first emerged of a possible deal with Liberty. Liberty is offering EUR 11.0 cash, 0.2282 Liberty Global Class A ordinary shares and 0.5630 Liberty Global Class C ordinary shares for each Ziggo share. Liberty also announced plans for a dividend of one Class C share for every other share held by its existing shareholders, to be paid in early March.
Buying the rest of Ziggo will cost Liberty Global in total EUR 4.9 billion, of which EUR 1.6 billion in cash and the remainder in stock. No shareholder approval is required for issuing the new shares, and Ziggo shareholders will hold 13 percent of the shares and 9 percent of the voting rights in Liberty after the deal. Liberty has secured debt financing for the cash component of the offer and plans to refinance this through a debt issue of EUR 1.5 billion at Ziggo after completing the deal. Ziggo's leverage would increase to 5x EBITDA as a result, in line with Liberty's own current targets.
The offer values Ziggo at 11.3 times EBITDA for 2013, or 9.3 times when including expected synergies. The companies estimate EUR 160 million in annual synergies by 2018 from merging Ziggo and UPC. This includes EUR 95 million in costs at the EBITDA level and EUR 25 million in capex savings, as well an additional EUR 40 million in EBITDA from revenue-related synergies. This will set the platform for renewed growth at UPC and Ziggo, which have both been losing customers to expanding FTTH networks around the Netherlands, incumbent KPN's growth in the TV market and new OTT entrants in the Netherlands such as Netflix.
Ziggo's boards have given their backing to the Liberty offer and its management have committed their shares to the bid. In addition to two fairness opinions on the bid, Ziggo secured an agreement with Liberty on various corporate governance, financing, strategy, organisation, employment, security and privacy issues for 2-3 years after closing of the deal.
After completing the takeover, Liberty plans to headquarter all its Dutch business at Ziggo's office in Utrecht, and the Ziggo brand will be adopted across the group. However, Ziggo's CEO Rene Obermann, who moved from Deutsche Telekom to the Dutch group at the start of this year, will not be joining the new company. Liberty Global will have the right to name the new CEO and CFO of the group.
Liberty aims to bypass the Dutch regulator and seek regulatory clearance for the merger from the European Commission. The company said it has prepared the application extensively and the regulatory filing should be made with the EC in February. However, Dutch competition regulator ACM told Telecompaper that it plans to request its own say on the merger. The EC will have 35 days from the request to decide whether to pass the case to the Dutch regulator or handle the investigation itself.
The regulators may impose conditions on the takeover, as together UPC and Ziggo have around 60 percent of the Dutch consumer TV market, according to research by Telecompaper. If the deal does not receive competition clearance, Liberty has agreed to pay Ziggo a termination fee of EUR 200 million. If Liberty does not meet the other conditions of the agreement and Ziggo abandons the deal, Liberty will owe the company a termination fee of EUR 69.5 million.
Liberty said it also aims to complete negotiations with works councils on the planned integration of the companies before launching the public bid for Ziggo. No details were disclosed on potential job losses from the merger, but Liberty said it plans to respect Ziggo's existing social plan and employment agreements, pending the negotiation of alternative redundancy plans. The bid document is expected within 12 weeks, after securing approval from the Dutch securities regulator AFM.
The offer also remains subject to approval by Ziggo shareholders. Liberty aims to delist Ziggo's shares from the Amsterdam market if it acquires at least 80 percent of the company in the public bid. The aim is to complete the takeover by the second half of 2014.
KPN, currently the only operator with a national network in the Netherlands, noted the news of the proposed merger, but said it changes nothing. If it sees changes in the market as a result of the merger, it will respond, a KPN spokesman told Telecompaper. However, at the moment, KPN remains focused on its own activities, he said.
