Liberty Global Deal Not Expected to Encounter Significant Antitrust Resistance
Planned Acquisition of Ziggo Would Grant Cable Holding Co Access to 90% of Dutch Households
On the face of it, Liberty Global LBTYA -2.56% PLC's latest play on Europe's cable market seems replete with antitrust dangers.
The company's planned €6.9 billion ($9.4 billion) acquisition of Dutch cable operator Ziggo ZIGGO.AE -0.52% NV would turn Liberty into a national giant, with access to 90% of Dutch households, due to its ownership of the second largest cable operator, UPC. But antitrust approval may be more straightforward than it appears.
The deal, announced Monday, represents the latest push by U.S. media mogul John Malone into Europe's rapidly-consolidating telecommunications industry. Liberty Global, Mr. Malone's international cable holding company, aims to create a stronger domestic rival for Royal KPN, KKPNY -0.13% the former publicly-held telecom group that owns the Dutch fixed line network.
Yet despite the new entity's clout and market reach, antitrust lawyers say cable-company mergers tend to raise fewer eyebrows at competition authorities than those of regular telecommunications or mobile businesses. Cable companies use their own dedicated lines and therefore compete with other communications businesses, such as satellite and fixed-line telecoms companies, rather than with each other.
"Cable businesses tend to already be local monopolies that don't compete with one another to attract customers, so competition isn't necessarily damaged when they combine," said Becket McGrath, a lawyer with Edwards Wildman in London. They typically start off regionally and gradually increase their nationwide reach through mergers, as in this case.
U.K. telecoms group Virgin Media, for instance, was built up through a series of cable-company mergers that were tolerated by regulators, including Telewest's acquisition of NTL. Virgin Media was subsequently bought last year by Liberty Global itself, in a $16 billion deal. Consolidation in Europe's fragmented telecoms industry is expected to continue rapidly due to structural challenges and the continent's still-weak economy.
Indeed, Liberty Global and Vodafone Group PLC have separately approached shareholders of Spanish cable operator Ono SA for a possible purchase that may be valued around €7 billion ($9.57 billion), a person close to the situation said Tuesday.
Ziggo was formed from the 2008 merger of two Dutch cable operators, Multikabel and Casema. The Dutch competition authority, which reviewed the case, decided that the companies competed with the national fixed telephone operator, KPN, rather than with each other.
"Ziggo and UPC don't offer their services in the same regions in the Netherlands, so arguably there is no overlap and it becomes much more difficult to prohibit the deal," said Denis Waelbroeck, a lawyer with Ashurst in Brussels.
Indeed, Dutch regulators might in fact welcome the possibility that there could be a genuine rival to incumbent KPN. But it is not yet certain that they would themselves get to review the deal. The Dutch competition authority has asked to take over from the European Commission because the case only affects national interests, though regulators in Brussels may demand oversight because of the size of the merger.
Either way, regulators are likely to carefully examine all possible ramifications, including whether a merged company would have the clout to pressure broadcasters to shut out KPN, which has a smaller TV business. This issue was considered in the review of the merger that created Ziggo. However, it is doubtful that would be a major problem because broadcasters are unlikely to agree to a deal limiting the number of operators that transmit their programs, said Steven Verschuur, a lawyer at Clifford Chance.
The biggest resistance is likely to come from program providers, who might fear that the new entity would demand lower prices for programs because of its increased market power.
Authorities may also consider whether the two companies compete indirectly. That could happen as follows: if Ziggo were to lower its prices nationally, KPN might feel obliged to follow suit, putting pressure on UPC to do the same, Mr. Verschuur said.
The companies have said they hope to close the deal in the second half of this year, suggesting they expect regulators to pore over the case. But barring any unforeseen complaints, that target seems realistic.