Liberty Global on target to spin off LatAm arm LiLAC by year end
Demerger could give investors stake in faster growing telco amid regional shake-up
Liberty Global says it remains on track for a spin-off of its Latin American arm known as LiLAC by the end of the year, as it readies the division for an expected industry shake-up in the region.
The move to split Liberty Global, predominantly a European cable company, and LiLAC, which comprises the merged Cable & Wireless Communications and Columbus networks in the Caribbean and Latin America, comes as the company prepares for the next stage of consolidation in the regions where it operates.
In a review of its second quarter on Tuesday, Mike Fries, chief executive of Liberty Global, said: “We believe the spin-off will benefit LiLAC shareholders by creating a standalone, asset-backed equity, while enhancing its potential attractiveness as an acquisition currency for consolidation opportunities in the highly-fragmented Latin American and Caribbean telecommunications markets.”
The company submitted a draft registration statement for LiLAC with the Securities and Exchange Commission in July. Mr Fries has talked about the possibility of spinning off LiLAC during investor calls, as a way of giving shareholders an opportunity to invest directly in the higher-growth Latin American businesses, as opposed to the more mature European assets. The demerger would also allow LiLAC to raise capital independently of the broader group.
The move would help to clear up Liberty Global’s complex structure. LiLAC was launched as a tracking stock, created in 2015 ahead of the £5.4bn takeover of Cable & Wireless Communications. The deal was largely paid for in Liberty Global stock, but John Malone, who controls Liberty Global and owned 13 per cent of Cable & Wireless, was paid in LiLAC shares. The billionaire bought an additional $16.3m of LiLAC stock on the open market in July, increasing his personal exposure to the Latin American operations.
The old Cable & Wireless assets, which date back to the first transatlantic cables laid between Britain and the rest of the world, account for around two-thirds of LiLAC’s cash flow and revenue. Revenue in the second quarter increased 2 per cent to $941m while operating cash flow grew 10 per cent to $368m.
That was faster than growth in Liberty Global’s European operations, where revenue grew 1.6 per cent to $3.6bn, slightly below expectations, while operating cash flow rose 6 per cent to $1.7bn.
Revenue in the UK, where it operates as Virgin Media, dropped 8.8 per cent in the three months to the end of June. Excluding foreign exchange movements, revenue increased 0.9 per cent.
Operating profit fell by £1.5m to £77.5m, despite a one-off £22.5m payment from BT’s Openreach to compensate Virgin Media, because of historic issues related to delayed connections. Openreach was fined £42m by Ofcom in March over the company’s use of loopholes to reduce compensation payments to other broadband companies, when lines were not connected in time. It is paying £300m to the industry as a result, putting a strain on BT’s cash flow.
Dhananjay Mirchandani, an analyst with Bernstein, noted that Virgin Media’s net customer adds had slowed to 31,000 in the second quarter, from 81,000 in the first quarter and 43,000 in the same period a year before. He said growth in Germany, where Liberty Global’s UPC put on 32,000 users, was “worryingly soft”.
Virgin Media is spending £3bn on new fibre as part of its “Project Lightning” programme, which has been beset by delays this year. It passed an additional 127,000 homes in the quarter