Liberty Media, the US cable group led by John Malone, is once again a likely frontrunner to acquire Deutsche Telekom’s [DT] cable assets, according to one source close to the bidders.
Liberty is bidding as part of a consortium of investors that includes Blackstone Partners, also linked to the current auction for Vivendi’s publishing arm, Apollo Advisors, BDF Capital and a local operator. The source described it as an unholy alliance that would be hard to resist as long as the price was right.
A Liberty bid for DT's six regional cable operators was rejected by the German cartel office a year ago on account of its reluctance to guarantee universal access to telephony as part of its offer. At the time the bid was worth €5.5bn. This time round, and now that cable asset values have slumped, Liberty is believed to have put just over €2bn on the table, at the lower end of Deutsche’s [revised] expectations.
The source said: “There is €300m of pretty clean cash flow from the businesses and you don’t sell that for anything less than five or six times ebitda. DT will take whatever they can get on top of that. They are under pressure to sell. Or at least they need to be seen to be selling.”
The source also said that despite Deutsche Telekom’s assurances to the contrary, he expected the auction to be a drawn out process. The cashflow, which comes primarily from just three of the operators, is a hard habit to give up in a hurry. He said: “The other three are the old and unpleasant former East German regions, which are not good for the triple play of voice, internet and digital TV. It is no surprise that the three densest and most affluent German regions, Baden Wuerttemberg, Nordrhein-Westfalen and Hesse were bought long ago.”
The regulatory debate, which torpedoed Liberty’s last bid, centred on whether provision of telephony to the former East German states was economically viable. Liberty said it could not make telephony pay. It is not clear whether the regulator’s approach has softened on this subject. But according to press reports Liberty is confident that this time so much has changed that its refusal to upgrade will be viewed more realistically.Goldman Sachs, Providence Equity, Apax Partners have also submitted a bid, as have another heavyweight syndicate of CVC Capital Partners, Warburg Pincus and, separately, Hicks, Muse, Tate & Furst.