Liberty Global expands European cable empire with Ziggo purchase

UTRECHT, Netherlands/BRUSSELS (Reuters) - U.S. cable group Liberty Global has clinched a takeover of Ziggo in deal that values the Dutch operator and its debt at 10 billion euros ($13.7 billion) and expands the U.S. firm's European empire.

Ziggo, which in October rejected an offer from Liberty as too low, said on Monday the current cash-and-shares offer implied a price of 34.5 euros per share, a 22 percent premium to Ziggo's shares just before Liberty's initial bid.

Liberty, controlled by U.S. tycoon John Malone, has been driving consolidation of the fragmented European cable market as it seeks profit from rising and largely recession-proof demand for faster Internet and digital television.

The company, which gets more than 90 percent of its revenue from Europe, has built its leading position via acquisitions from Ireland to Romania over the past decade and already owns 28.5 percent of Ziggo.

Buying the rest will increase Liberty's presence in the Low Countries, where it owns Ziggo's Dutch competitor UPC, as well as a majority stake in Belgian group Telenet, the main cable group in the north of Belgium.

Combined with UPC, Liberty will reach 7 million people or about 90 percent of Dutch homes, and be a leading challenger to former state monopoly KPN in mobile and for business customers.

Ziggo's shares were down 3.6 percent at 32.05 euros at 1222 GMT, compared with a 3.2 percent decline in the STOXX European telecoms index.

Rabobank analyst Frank Claassen said Ziggo's share price may have reflected too much hope about the impending offer.

"The cash part is fairly low, and the rest is in Liberty Global shares, so there's uncertainty about how the Liberty Global shares are performing," he said, adding that securing regulatory approval would add several months of uncertainty.

Liberty said it expects to find 120 million euros in cost savings from its UPC/Ziggo combination and a further 40 million euros in core profit from revenue growth by 2018.

Diederik Karsten, executive vice president of Liberty Global's European Broadband Operations, said the deal would lead to job cuts because of overlap. It was expected to close in the second half of this year.

Liberty also owns Germany's second-largest cable operator UnityMedia and bought Britain's Virgin Media in a $15.8 billion deal last year.

CASH OF 11 EUROS, REST IN SHARES

Liberty Global will pay a stock dividend of one class C share for each existing class A, B or C shares in early March.

Upon completion of this, Ziggo shareholders will receive 11 euros in cash, 0.2282 Liberty class A shares and 0.5630 class C stock for each Ziggo share that they hold. The offer represents a premium to Friday's close of 33.25 euros.

Ziggo, which last week forecast that rising costs for promotions and its mobile push would negate revenues gains this year, said the deal gave it an enterprise value to 2013 core profit (EBITDA) multiple of 11.3 times.

That compares with the forward 11.8 times value for Kabel Deutschland, which is majority-owned by Vodafone and a median of 9.4 for Ziggo's peers, according to Reuters data. Liberty paid about 8 times forward EBITDA for Virgin Media.

Liberty's financial advisers are Bank of America Merrill Lynch and Morgan Stanley, and its legal counsel is Allen & Overy. Ziggo is working with J.P. Morgan and Perella Weinberg Partners and law firm Freshfields Bruckhaus Deringer.

(Additional reporting by Sara Webb, Editing by Adrian Croft and Erica Billingham)