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4 February 2019

Liberty Global backs away from plan to acquire Millicom in LATAM

Well that was quick. Liberty Latin America has already backed away from plans to acquire Millicom International Cellular, just a week after discussions were confirmed.

But given the divestment of operations in Liberty Global’s core European markets, John Malone will be seeking an alternative route for his Latin American and Caribbean growth ambitions, with operators small, medium and large across the continent now in the firing line. Don’t slash the odds on Liberty Latin America and Millicom reigniting merger negotiations just yet, however.

So, Liberty Latin America says it failed to secure enough support from Millicom management for the proposed $7.6bn takeover. No surprises there, considering Millicom’s core mobile business has been growing pretty steadily, while dipping its toes into satellite TV, so with cable expert Liberty looming, it’s no wonder the Millicom board was apprehensive.

Once Liberty Latin America’s debt pile of $6.7bn is also factored in, the deal looks even less appealing and, as we said last week, Millicom is the larger company by revenues and clearly feels it has staked its own claim on the market, so probably wants to continue nipping at the heels of Telefónica and América Móvil, the former of which Millicom has been hot on the heels of for over a decade now.

“The Company remains focused on its growth strategy to deliver value for shareholders and provide market leading products and services to its customers,” said a Liberty Latin America statement.

But what of plan B? Liberty Latin America reportedly has a keen eye for the Chilean market, where Telefónica, Claro, DirecTV, Entel, Telsur are the major pay TV operator players, as well as Liberty Global subsidiary VTR, suggesting there is potential for consolidation in the market perhaps with VTR merging with a similar-sized operator. Although, with a little over am subscribers and a dominant fixed broadband market share, a cable merger might not pass regulatory muster, which could explain why the company has been circling mobile-focused Millicom.

Some in the industry reckon Liberty Latin American will be hard fought to find an alternative acquisition target of similar thump to Millicom. “There is no obvious other M&A target that is anywhere near the significance of Millicom. Longer term, we believe Liberty LatAm and Millicom will revisit merger talks,” wrote financial research firm Roe Equity Research.

People familiar with the matter, speaking to Bloomberg, said Millicom’s main shareholder, Swedish investment firm Kinnevik, supported the proposed takeover, although Liberty Latin America’s offer could not sway Millicom management.

Millicom has 450,000 DTH subscribers in Latin America, losing 5,000 subs in Q3 2018 but a year on year growth of 83,000, and it has 2.64m homes connected to its HFC network. Meanwhile Liberty LatAm posted widespread pay TV losses for Q4 2017, although the operator recovered somewhat during the most recent quarter, ending Q3 2018 with 1.7m video subscribers, gaining 12,600, and 2.2m broadband internet subs, via the brands Cable & Wireless, VTR and Liberty Puerto Rico.