Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB, LBTYK, LILA and LILAK) and Cable & Wireless Communications Plc (“CWC”) (LSE: CWC) today announced via press release a recommended offer (the “Offer”) by Liberty Global for all outstanding and to be issued shares of CWC.
Pursuant to the Offer, Liberty Global would acquire CWC for shares of Liberty Global in a scheme of arrangement valuing CWC at a total equity value of approximately £3.5 billion ($5.3 billion)1, or an implied price of 78.04 pence per CWC share, based on closing share prices as of November 13, 2015. Further, CWC shareholders would be entitled to receive a special dividend in the amount of 3.00 pence per share at the closing of the transaction, which would be in lieu of any previously announced CWC dividend.
The consideration of 81.04 pence per CWC share represents a purchase price multiple of 10.7x CWC’s adjusted LTM September 30, 2015 EBITDA (on a proportionate basis), after taking into consideration the unrealized2 cost synergies resulting from CWC’s acquisition of Columbus International (“Columbus”).
We believe that there are incremental financial benefits over and above the $125 million of total run-rate cost synergies that have been publicly quantified by CWC with respect to the Columbus acquisition, and we expect to derive additional synergies as a result of the combination of our LiLAC operations with CWC. We cannot provide an estimate of the total incremental synergies at this time because a quantified financial benefits statement is required under the U.K.
Takeover Code, which has not been prepared at this time. On a pro-forma basis, we expect the combined group of CWC and LiLAC to deliver low double-digit rebased OCF growth over the medium term.
Under the terms of the Offer, Liberty Global will issue a maximum of approximately 31.7 million LBTYA, 77.5 million LBTYK, 3.6 million LILA and 8.9 million LILAK ordinary shares3. In addition, Liberty Global will assume CWC’s existing proportionate net debt as part of the transaction, which was $2.7 billion as of September 30, 2015. We expect that the dividend and estimated fees and expenses will be funded from CWC liquidity including incremental debt borrowings and LiLAC Group liquidity.
Mike Fries, CEO of Liberty Global, said, “The acquisition of Cable & Wireless represents a watershed moment for our recently created LiLAC platform. It will add significant scale and management depth to our fast-growing operations in Latin America and the Caribbean, while creating a new regional consumer and B2B powerhouse. Upon completion, the combined business will serve 10 million video, data, voice and mobile subscribers, with leading positions across multiple markets.”
“With our long track record of strong operational and financial performance in the region, we are confident that this combination will yield substantial synergies and accelerate our current prospects for the LiLAC Group to low double-digit rebased OCF growth over the medium term. Our high-quality networks and commitment to product innovation will provide the foundation for growth and value creation for both Liberty Global and LiLAC shareholders. Upon closing, the combined LiLAC and CWC businesses will benefit from the broader group’s scale and management expertise.”
Completion of the acquisition is subject to, among other conditions, Liberty Global and CWC shareholder approvals, certain regulatory approvals and court sanction of the scheme of arrangement. Following the completion of the acquisition, it is expected that CWC will be attributed to the LiLAC Group, with the Liberty Global Group holding an inter-group interest in the LiLAC Group, based on the 5 day volume-weighted average price (VWAP) of Liberty Global shares leading up to the date of this announcement, and a 95 trading day VWAP for LiLAC shares, which covers the period from launch of the LiLAC tracking stock up to this announcement.
Based on the Offer set forth above, the LiLAC Group, on a pro forma basis3, will be approximately 25.44% owned by existing LiLAC Group shareholders and 7.21% owned by existing CWC shareholders, with 67.35% represented by the inter-group interest in favor of the Liberty Global Group. No decision has been made as to whether the LiLAC businesses would be spun-off; however, outstanding inter-group interests are generally distributed to shareholders in spin transactions.
The offer represents an 11% premium to the 5-day CWC VWAP of 73.11p as of November 13, 2015 close and a premium of 40% to the closing share price of CWC of 58.00p on October 21, 2015, the day before CWC announced that they were in talks to be acquired by Liberty Global.
The Offer includes three alternative proposals which CWC shareholders can elect to receive, as described in detail in the Rule 2.7 announcement: a recommended proposal and two alternative proposals. CWC shareholders are encouraged to review that document for details. A brief summary of the proposals follows: The CWC shareholders electing to receive the recommended proposal will receive as consideration an amount of Liberty Global shares, with a right to “mix and match” LiLAC shares, subject to pro-ration.
The recommended proposal would have an estimated value of 86.00p per share based on the closing share price of Liberty Global shares (blended) as of November 13, 2015 (assuming no LiLAC shares are elected). Shareholders electing to receive either of the two other proposals (the “Alternative Proposals”) will receive combinations of Liberty Global and LiLAC shares in different proportions.
The former majority Columbus shareholders (“Columbus Holders”) have agreed to elect for the Alternative Proposals, which are valued at 78.14p and 68.22p, respectively, based on the closing share prices of Liberty Global and LiLAC shares (blended) as of November 13, 2015. The blended weighted average of these three alternative offers is an implied price of 81.04 pence per CWC share. In no event does the amount of consideration paid by Liberty Global increase as a result of CWC shareholders making any of these elections, as the number of Liberty Global and LiLAC shares are fixed. Please see the Rule 2.7 announcement for further details.
Strategic combination of LiLAC and CWC
Creating the leading consumer and B2B communications provider in Latin America and the Caribbean
Together with the meaningful synergy opportunity, the combined operations will create a unique investment vehicle, which includes an attractive combination of organic growth and further consolidation opportunities throughout Latin America and the Caribbean.
We expect the proposed transaction will enhance the long-term equity value for both Liberty Global Group and LiLAC Group shareholders for the following reasons:
- Combines high-growth assets in the Latin America and the Caribbean region to form the leading consumer and B2B communications provider, with 10 million video, broadband, fixed and mobile telephony subscription services4. This new combination would have generated estimated consolidated revenue5 of over $3.5 billion and estimated consolidated OCF5 of $1.4 billion for the twelve months ended September 30, 2015. The combined business is expected to deliver low double-digit rebased OCF growth over the medium term.
- Adds a powerful B2B Latin American and Caribbean platform to LiLAC, as CWC’s comprehensive product portfolio and extensive terrestrial and submarine network will position LiLAC to capitalize on the growth in the business market throughout the region.
- Enables continued network investment and product innovation for the benefit of consumers and business customers alike, taking advantage of efficiencies driven from combined scale, and leveraging both companies’ complementary experience in product development and customer-centricity.
- Offers attractive organic growth opportunities in broadband, pay TV and mobile data; Liberty Global expects to capitalize on the market-leading brands, superior fixed and mobile networks and product leadership of the new combination to take advantage of underlying untapped demand for broadband, pay TV and mobile products and drive customer take-up.
- Provides significant synergy opportunities; together with the extensive integration that is currently ongoing by CWC with respect to its recent acquisition of Columbus and supported by Liberty Global’s proven integration experience, we believe there are incremental financial benefits over and above those publicly quantified ($125 million of cost synergies) by CWC, as well as additional synergy opportunities from combining CWC with LiLAC.
- Creates leading regional platform to capitalize on further M&A opportunities; Liberty Global believes that the combined businesses of LiLAC and CWC will be well-positioned to exploit the fragmented telecom and pay television landscape.
In connection with the transaction, Goldman Sachs International and LionTree Advisors acted as financial advisors to Liberty Global. Shearman & Sterling LLP served as legal counsel to Liberty Global.
Next Steps and Indicative Timetable
The issuance of shares to CWC shareholders requires approval by the Liberty Global shareholders under applicable NASDAQ listing rules and U.K. corporate law.
Liberty Global will prepare and send to Liberty Global shareholders a proxy statement summarizing the background to and reasons for the transaction, which will include a notice convening a meeting of Liberty Global shareholders to approve the transaction. The transaction is conditional on, among other things, the approval of the shares issued in the transaction by the requisite majority of Liberty Global shareholders.
It is expected that a proxy statement will be filed with the SEC and sent to Liberty Global shareholders during the first quarter of 2016. It is anticipated that both the Liberty Global and the CWC shareholder meetings will be held within approximately five months of the date of this announcement.
Based on the required steps and subject to the necessary conditions and approvals, Liberty Global anticipates that the Offer will close in the second quarter of 2016.
In addition to the extensive integration that is ongoing between CWC and Columbus, which is expected to generate $125 million of run-rate cost savings and $145 million of one-time capital expenditure synergies by March 31, 2018, CWC has also disclosed that they expect material revenue synergies through cross-selling, improvements in the video offering and network quality, and enhancements in the B2B offering.
Furthermore, Liberty Global expects to generate synergies as a result of the integration of CWC and the LiLAC Group businesses. Areas of opportunity include savings related to elimination of public company expenses, further corporate and administrative rationalization of existing LiLAC Group operations with those of CWC, leveraging the combined scale in areas such as content, procurement, and product development, and capitalizing on CWC’s terrestrial and submarine network assets and B2B expertise and product portfolio to benefit LiLAC Group’s operations.
In order to provide an estimate of synergies over and above the $125 million mentioned above, a quantified financial benefits statement is required under the U.K. Takeover Code. Such statement regarding the additional potential synergies has not been prepared and therefore an incremental synergy figure cannot be provided at this time.
If the transaction closes, utilization of CWC’s US and U.K. deferred tax assets would be restricted and we believe that material realization of the benefits of those assets would be unlikely.