CWC takeover by Liberty Global could be carried out at LiLAC level
Liberty Global [LBTYA:NASDAQ] could choose to issue shares at the LiLAC [NASDAQ:LILA/LILAK] rather than parent level for its acquisition of Cable & Wireless Communications [LON:CWC], two bankers following the deal and a top minority investor said.
Liberty and CWC are in talks regarding a cash and share offer for CWC, with a PUSU deadline of 19 November. Liberty’s Latin America and Caribbean Group (LiLAC) began trading in July this year to give shareholders the opportunity to invest directly in the region.
Issuing shares in LiLAC rather than Liberty Global would give the entity welcome scale, the investor, who holds shares in both Liberty and CWC, said. However, as LiLAC trades at a lower multiple to Liberty Global, the acquisition would be more dilutive to its shareholders than if the shares were issued at parent level, the investor said.
Liberty Global plc is trading at 10.4x LTM EBITDA and Liberty LiLAC Group is trading at 8.1x LTM EBITDA, according to Dealreporter analytics.
A share issue at the LiLAC level would also limit the impact of the CWC acquisition on the prospects of a Vodafone [LON:VOD]/Liberty Global tie-up in the future, the first sector banker said. Keeping the emerging market assets operating independently from Vodafone and Liberty Global’s European portfolio would simplify any potential future discussions between the two companies, this banker said.
The exact division of cash and shares for the deal is not yet known. The investor said he did not have concerns about the ratio as yet, but noted the price is yet to be confirmed.
Talks are understood to be focused on an offer price of between 80-85p per share, as previously reported. This seems to be a full price for CWC, the first banker and investor said. The company is still in transition, having completed its acquisition of Columbus International in March this year, a third sector advisor noted.
CWC’s interim results for the first half, published today, state group revenue is up 4% on the previous year, at USD 1.2bn. The company saw a pre-tax loss due to ‘exceptional items’ including the integration of Columbus.
The acquisition holds strong rationale for Liberty Global, the two bankers said. Despite concerns about constraints on improving performance in certain countries and large minority government stake, the acquisition makes sense when the lack of alternative options is considered, the two bankers said.
CWC has presence across the Caribbean and Latin America. Peers with a similarly wide geographic scope, America Movil [NYSE:AMX] and Telefonica [NYSE:TEF], could not be acquired by Liberty Global, the bankers said. Digicel is smaller and financially viable but does not have the geographic scope Liberty wants, they said.
Liberty Global and CWC declined to comment.