Liberty Global's Malone Sells Japanese Cable Stake for $4 billion

Media tycoon John Malone has used aggressive deal-making to build Liberty Global (LBTYA) into a $6.5 billion company with cable operations serving 17 million customers across 14 countries, most of them in Europe, but including Australia, Chile and Japan.This week, Malone struck another deal. He sold his 37.8% stake of Jupiter Telecommunications for $4 billion to KDDI, which is a large mobile operator based in Japan. Jupiter, which got its start in 1995 as a joint venture with Sumitomo Corp., is the largest cable operator in Japan and was the innovator of the "triple play" strategy -- bundling cable, broadband and phone service in one package -- in that country.

The acquisition will be a nice complement for KDDI, which needs to find a way to fend off Japanese cellphone competitors NTT DoCoMo and Softbank. There will also likely be synergies with its existing cable unit, Japan Cable Net, which is No. 2 in Japan. As for Jupiter, it will bring 3.27 million subscribers and a valuable high-speed fiber network infrastructure into KDDI's operation.

Even though Japan is a good market, Malone also knows a good deal when he sees one. First of all, competition is growing more intense in Japan as the industry consolidates. Second, it is not easy to get Japanese customers to pay for TV, unless there are attractive add-ons like broadband and phone service.

But perhaps the main reason for the deal: KDDI offered a nose-bleed valuation, with the premium 65% over the trading price of Jupiter's shares as of the close on Friday. The multiple comes to roughly 8.3 times the last 12 month's consolidated operating cash flows. On news of the deal, Liberty Global's shares climbed 6.6% to $25.09.

True, these types of cash deals can take a tax bite. But when it comes to Malone, he knows how to find tax efficiency and will likely find a way to keep the IRS away.

At the same time, the cash infusion will help out with Liberty Global's M&A ambitions. Back in November, Malone agreed to pay $3.7 billion for Unity Media, as well as to assume $2.2 billion in debt (the company was formerly part of a buyout from Apollo and BC Partners).

Unity Media is the No. 2 cable operator in Germany, with footprints in some of the richest markets in the country (North Rhine-Westphalia and Hesse). In all, it has coverage of 8.8 million homes.

The Unity Media deal came to about 7.4 times EBITDA. However, there are expected to be cost synergies, which Malone thinks will result in a multiple of 6.6 times.

After all of this shuffling, Liberty Global will get roughly 85% of its revenues from Europe. But there will probably be even more deal-making to come to bolster its market power.
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