Assets include 60% of Germany's grid
BERLIN — Liberty Media’s decision to have a second go at Deutsche Telekom’s German cable assets is good news for supporters of digital broadband and confirms local media watchers’ suspicions that the global cabler has not given up on the Teutonic territory.
For DT, however, it’s a bitter-sweet development. The telco giant will come nowhere near the 5.5 billion euro ($5.4 billion) price it would have got from John Malone’s Liberty earlier this year when its bid was nixed by antitrust authorities.
DT admitted recently it was expecting $2.5 billion to $3.5 billion for the assets, which include 60% of Germany’s cable grid. The telco joins other troubled Teutonic media giants holding summer discount sales.
Liberty chief exec Dob Bennett said Aug. 15 that the company was considering returning to Germany as part of a consortium and it has reportedly already hooked up with investors Blackstone and Apollo.
DT has shortlisted three other consortia that are to place binding offers by the end of September, including Goldman Sachs Capital Partners and Primera; telco market specialist Providence Equity and Apax Partners; London-based investment house CVC; and Warburg Pincus. Two other bids have been received from Hicks, Muse, Tate & Furst and BC Partners.
With cable providers collapsing across Europe, it’s mainly international banks and venture capital investors that have enough financial clout to bid for DT’s cable pipes, which reach 10 million households.
“Venture capitalists may end up buying the cable lines, but then what? They need a partner with the technical know-how and deep pockets,” says Merrill Lynch analyst Bernard Tubeileh. And Liberty appears to be the only player still capable of acquiring and overhauling the lines, he adds.
Yet with Vivendi Universal’s media holdings possibly going on the block soon, Liberty may have to mull over its growing options in Europe.
DT is eager to finalize a sale by year’s end, but bidding isn’t expected to wrap soon.
The telco is facing a difficult auction. Market conditions have worsened considerably since February, when Germany’s cartel office torpedoed Liberty’s takeover of DT’s six regional cable systems covering Hamburg, Schleswig-Holstein and Mecklenburg-Western Pommerania; Bremen and Lower Saxony; Berlin and Brandenburg; Saxony, Saxony-Anhalt and Thuringia; Rhineland Palatinate and Saarland; and Bavaria.
The company needs a decent return to trim its $63 billion debt, but with the future of digital broadband looking ever more dismal, the assets are losing value by the day.
DT, which posted record half-year operating losses of $3.9 billion Aug. 21, is hoping to cut its debt to $48 billion by the end of 2003.
Of DT’s original nine regional cable franchises, three were sold to investors, including Denver-based Callahan Associates, which picked up two: North Rhine-Westphalia and Baden-Wurttemberg. The Callahan NRW subsidiary has since filed for bankruptcy. The other companies are also in trouble.
Part of the problem was the failure to sell the rest of the grid, which would have allowed for a cooperative effort to upgrade large areas across the country. Liberty and Callahan are reportedly ready to co-operate in Germany if Liberty gains a foothold here.
While antitrust authorities have made it clear that they will block any business models akin to the one originally proposed by Liberty, DT officials are confident a consortium of investors may have an easier go.
Watchdogs opposed what they saw as Liberty’s domination of the market as a content provider and cable operator.
Liberty could have won approval if it had agreed to include telephony technology and high-speed Internet access in its upgrade in addition to simply widening the TV channel spectrum; that, however, would have gone far beyond Liberty’s strict business plan.