There are two things that concern us about rumors this week circulating that Liberty Global will buy more cable capacity in Germany. The first is that Liberty Global is run on a purely financial footing. It doesn’t ever want to acquire more cable in one country than another, it simply looks for good deals.
And if deals are good for the company financially it will buy cable operators anywhere in Europe, (or anywhere else) and if they cease to be good, it will just as happily sell them again, even if it means conceding a key territory.
The second issue is that in Germany, where Liberty Global has recently acquired Unity Media, what was the second largest cable operator there, after Kabel Deutschland (KDG), there is a strong and repeated belief on the part of the financial regulator, that cable must not be held in too few hands. In the past, investor owners have wanted to merge Unity with KDG and Kabel Baden Wuerttemberg (BW) and it has been opposed and killed as a deal by the Cartel Office.
It was in November last year that Liberty Global, the biggest international cable TV conglomerate, bought into Germany, buying Unity Media for €3.5 billion ($5.23 billion at the time), which included around €1.5 billion in debt, which was immediately cancelled. The deal has still not closed.
Liberty Global has strong cable holdings in Europe including the Netherlands, Switzerland, Austria, Ireland, and Belgium, and central Europe in Hungary, Romania, and Slovakia, as well operations as far afield as in Chile and Japan, totalling 16.6 million cable customers, many of them triple play customers. The deal will add around 4.6 million German subscribers, taking the installed base to 21 million homes, almost the size of Comcast in the US.
Sure Liberty Global might be in the running for buying debt-laden Orion Cable in Germany, which its creditors have just put up for sale, which could be seen more as a tidying up operation than a major acquisition, but the purchase of KDG from its private equity owner Providence is an altogether other matter and the Cartel Office would blockade the deal immediately. The smaller Kabel BW might be a deal that would possibly be allowed
The story broke in the German newspaper Handelsblatt which said that Liberty Global sources had said they were on the hunt for more German properties. One of the key elements, which we have always said would one day shift the view of the Cartel Office, is how well Deutsche Telekom is doing in IPTV. If it takes a noticeable amount of pay TV market share in Germany, it could be argued that cable needs the freedom to consolidate or it would face a rival with a national footprint, and yet not be allowed one itself. Apply the same argument to the US and it makes for a good reason for Comcast to buy all its peers.
Either way, Liberty Global will likely swallow its last meal before deciding what to hunt next.