LONDON—Just months after its acquisition of Columbus International, Cable & Wireless Communications (CWC) is now entertaining a takeover bid from European telecoms giant, Liberty Global.
According to a statement by CWC, Liberty – which is fronted by cable billionaire John Malone – is in talks to acquire CWC in a cash-and-share offer valued at US$5.5 billion, with Liberty offering more than a 40 percent premium on existing share prices. The deal would also see Liberty assuming CWC’s net debt, which stood at $2.6 billion at the end of the second quarter of 2015.
Disclosure on the talks saw a 20 percent spike in share value by close of trading on Thursday, followed by a further 9% increase on Friday, which put the value of CWC’s market capitalization at over £3 billion – up from £2.5 billion earlier this week.
Malone, whose Liberty Global operations include brands such as Virgin Media, was the largest single minority shareholder in the former Columbus International, and he now holds 13 percent of CWC shares, following CWC’s Columbus acquisition. All told, Columbus’ former owners own 36 percent stake in the newly-enlarged CWC.
Shareholder optimism
News of the takeover bid comes as CWC continues to rebrand its consumer operations in the Caribbean to Columbus’ former Flow identity, but sources familiar with the matter indicate that Liberty and CWC had been mulling consolidation for some time, given CWC’s strong position in the Caribbean and Central America, and Liberty’s growing operations in Puerto Rico and Chile. For Liberty, the move would mount a more effective challenge in Latin America to Spanish-owned Telefonica, and telecoms interests held by Mexican billionaire, Carlos Slim Helu.
In a statement, CWC cautioned investors not to take any decisions in relation to the news of the potential acquisition, saying that there was no “certainty that any firm offer will be made, nor the terms on which any such offer might be made”. Still, a Financial Times source close to the discussions said that Malone has strong support from shareholders who are keen to see Liberty and CWC consolidated.
Under UK law, Liberty has until November 19 to make an offer or announce that it has no intention to buy CWC.
Another hit to Digicel
CWC’s major competitor, Denis O’Brien’s privately-held Digicel, has not yet made an announcement on the news of CWC’s potential acquisition. But the news comes on the heels of a decision by O’Brien and Digicel’s board to pull their plans for the company to go public, citing claims that conditions in emerging markets were unfavorable to its business.
“We’re not backed by private equity, it’s all owned by myself and my colleagues so we didn’t need to do an IPO at any time; it was opportunistic from our point of view. We’ll come back and we don’t need any funding at the moment. It’s a great feeling not to need any funding.” — Denis O’Brien, Digicel Founder and Chairman
But Francis Gaskins, the president of the research firm IPO Desktop, told Reuters earlier this month that Digicel’s balance sheet is still too weak: “[Digicel] is a big company that has been losing money since it started. They’ve been growing subscribers at 2 percent a year.”
Market watchers also doubted Digicel’s ability to be an attractive IPO investment, noting that it reported a loss of over US$157 million on a US$2.79 billion revenue for the year ending March 31, 2015, compared to a profit of US$43.5 million on revenues of US$2.75 billion in the previous year.
O’Brien previously hit out at the CWC/Columbus acquisition in November of last year, arguing that CWC had overpaid for the Columbus business by over US$1 billion to the detriment of CWC’s balance sheet.
The Digicel chief claimed that the Columbus acquisition would ultimately make Caribbean cable TV and broadband markets less competitive, while resulting in higher prices for consumers; job losses for CWC staff; a slower pace of investment and innovation; and reduced economic stimulation for the Caribbean, as customers paid the price for CWC’s “exorbitant” offer. At the time, CWC rubbished O’Brien’s claims as sour grapes spurred by Columbus’ refusal of a prior takeover bid by Digicel, but the new CWC entity has since experienced some teething pains.
This week, the Council of Ministers of the Eastern Caribbean Telecommunications Authority chastised the company for announcing broadband price hikes before finalizing an agreement with the regulatory body, which regulators say violates the spirit of the negotiations underway to set out how the company will operate in the OECS member states.
In Barbados, layoffs have started at the new CWC entity, while in Jamaica, customer complaints about the company’s services spiked as high as 74 percent in the second quarter of 2015, prompting the Office of Utilities Regulation to summon company executives for a meeting on remedial actions.
Meanwhile trade union leaders in the Caribbean have also reacted to the potential deal, with the Deputy-General Secretary of the Antigua & Barbuda Workers’ Union, Chester Hughes, questioning the ‘psychological impact’ on CWC’s employees. “The potential takeover is a cause for concern for us. This is now the sale of the last bit of what was known as C&W. These employees were told about the [restructuring] of the company some two years ago when [CWC CEO] Phil Bentley took over “, Hughes said, “CWC just purchased Columbus and now there are possible talks of another sale.”
Bentley, for CWC’s part, had long conceded that CWC’s strength remained solely in the Caribbean market, as he hinted at that the company could be a takeover target in a Telegraph interview in May this year.
“We’ve got to just play our game in the region and if one of the global players comes knocking on our door, then so be it. If someone then puts enough money on the table then so be it. Nobody is immune from takeover interest.”— Phil Bentley, CWC CEO, as told to The Telegraph
“We’ve got into a position of strength to be the regional powerhouse, which is good”, Bentley said, “but we’ll never be a global player. We’re a big fish in our little Caribbean Sea.”
