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May 31, 2011
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A leading cable operator in Europe, Latin America and Australia, Liberty Global Inc. (LBTYA), which currently holds a 54.2% stake in Australia’s AUSTAR United Communications Limited, received a takeover bid worth $2 billion from FOXTEL.
FOXTEL is an Australian pay television company that offers cable, direct broadcast satellite television and IPTV services. FOXTEL is a joint venture between Telstra, Consolidated Media Holdings and News Corporation (NWS).
If AUSTAR and FOXTEL enter into a definitive agreement regarding the acquisition, Liberty Global will relinquish 688.5 million shares of AUSTAR that it currently holds. The company intends to utilize the proceeds for further market expansion through accretive acquisitions and mergers or to finance the lay out of DOCSIS 3.0 in all its markets, which in turn will improve its service quality. In 2010, the company divested its operations in Japan. Further, the company may divest its Australian arm and solely focus on Europe and some parts of Latin America.
Liberty Global initiated its business restructuring from early 2010. The company is currently concentrating primarily in Europe and Latin America, while divesting operations in other parts of the world. Germany is one of the major growth area for Liberty Global where it completed two major acquisitions. Liberty Global acquired UnityMedia GmbH and Kabel Baden-Wuerttemberg GmbH & Co KG, the second and third largest cable TV companies in Germany, respectively. Recently, it is rumored that Liberty Global is planning to bid for Ziggo, the market leading cable operator in Netherlands. The acquisition of Ziggo will virtually place Liberty Global at the helm of the Dutch cable TV market.
Western Europe has become a lucrative market for cable operators. These markets are witnessing growing demand for pay-TV services together with triple-play bundled services that combines basic cable TV, Internet, and telephony. In the coming years, we believe Liberty Global’s revenue will continue to benefit from a ‘triple play’ of video, broadband, and telephone, as it signs up more “bundled” customers in Europe.
We thus maintain our long-term Outperform recommendation for Liberty Global. Currently, Liberty Global has a Zacks #2 Rank, implying a short-term Buy rating on the stock.
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