International TV and broadband company Liberty Global has reached an agreement to sell its Austrian operations, UPC Austria, to Deutsche Telekom unit T-Mobile Austria. At September 30th, 2017, UPC Austria’s network passed 1.4 million homes and served 654,000 customers who subscribed to 513,000 broadband, 450,000 voice and 468,000 video services.
Liberty Global will sell UPC Austria for a total enterprise value of approximately €1.9 billion subject to customary debt and working capital adjustments at completion. The sale price represents a multiple of nearly 11x UPC Austria’s estimated 2017 adjusted segment operating cash flow, as customarily defined by Liberty Global, or approximately 34x UPC Austria’s estimated 2017 operating free cash flow. Closing of the transaction is subject to regulatory approval, which is not expected until the second half of 2018.
“This transaction highlights the strategic and financial value of our fibre-rich networks in a rapidly converging world and the significant synergies inherent in fixed-mobile mergers,” commented Mike Fries, Chief Executive Officer of Liberty Global. “We have operated in Austria for over 20 years and are extremely proud of the market-leading position we’ve built in both digital video and super-fast broadband. Looking forward, we believe the combination of UPC Austria and T-Mobile Austria will provide the national scale necessary to compete with larger companies like A1, and provide residential and business consumers with the highest quality services at the best price. We remain focused on value creation for our shareholders and are pleased with the premium valuation being attributed to one of our smaller operating markets.”
The proceeds from the sale are expected to be used for general corporate purposes, which may include leverage reduction for the remaining UPC bank group, re-investment into our business, and support for the company’s share repurchase programme.
Liberty Global has agreed to provide certain transitional services for a period of up to four years. These services principally comprise network and information technology-related functions. The annual charges will depend on the actual level of services required by T-Mobile Austria. Liberty Global will also allow T-Mobile Austria to use the UPC brand for a transitional period of up to three years as part of the transaction.
The combined company will be an integrated provider of mobile and fixed line broadband internet, IoT (Internet of Things), mobile and fixed line telephony as well as TV- and entertainment products in Austria. The company will bring quadruple play offerings to customers and will become a strong converged challenger and alternative to the incumbent A1 Telekom Austria.
“With this acquisition Deutsche Telekom is taking another major step to realise our strategy to become a fully converged operator in our European footprint. The acquired cable network will be a perfect match with our best mobile network. It will allow customers to benefit from extended scope of services with fixed and mobile offerings from one source. We see a significant potential to accelerate growth in the Austrian market,” commented Srini Gopalan, Board Member Deutsche Telekom for Europe.
The enlarged company will have approximately 6.7 million Revenue Generating Units (RGUs, 3rd quarter 2017) including some 5.2 million T-Mobile Austria mobile customers. UPC Austria is the largest cable operator in Austria with coverage of 36 per cent of the households in the market, mostly in urban areas. With 1.5 million RGUs, the company is #2 in the Austrian broadband market with more than 0.5 million customers and #1 in the Premium-TV market with a customer base of some 0.4 million. The combined revenue of both companies in 2017 is expected at €1.2 billion based on pro-forma calculations.
The transaction valuation implies a broadly equal split of cost/capex synergies between the two parties. Cost and capex efficiencies are expected to deliver 80 per cent of the synergies, e.g. in areas such as IT and network operations. Deutsche Telekom expects the transaction to be accretive to group Free Cashflow and EPS from year one onwards.
“Broadband is the indispensable foundation for a digital Austria,” declared Andreas Bierwirth, CEO T-Mobile Austria. “It is our ambition to provide our customers, whoever and wherever they are, with the best possible seamless broadband experience for all of their needs through LTE, digital cable, fibre and future technologies like 5G.”
By acquiring UPC Austria’s extensive cable network T-Mobile Austria is transforming from a mostly mobile provider to an integrated communications challenger with strong mobile and fixed infrastructure to meet growing demand for broadband Internet access. Especially in urban areas, the combination of fast digital cable and fibre as well as LTE will make T-Mobile Austria a strong competitor in both the consumer and businesses segments of the broadband market. To ensure broadband connectivity in rural areas, T-Mobile Austria will continue its significant investment in the build-out of LTE. Together with the dense urban fibre infrastructure of UPC Austria, the fibre core network owned and operated by T-Mobile Austria will form a strong backbone for high speed mobile broadband access and for next generation network 5G.