Copyright 2004 The Deal LLC
Daily Deal/The Deal
October 26, 2004 Tuesday
U.S. cable entrepreneur Richard Callahan has surrendered the final remnant of his European empire to rival John Malone in a transaction that consolidates the latter's strong position on the Continent.
Callahan's London-based Cable Partners Europe LLC on Monday, Oct. 25, said it has sold a 14 percent stake in profitable Belgian network Telenet Cable Group Holding NV to Malone's Englewood, Colo.-based Liberty Media International Inc. for just $23 million.
Renowned as one of the canniest dealmakers around, Malone looks once more to have done a tidy piece of business. For Callahan, however, the transaction, which has been under discussion since April 2004, brings down the curtain on an ambitious foray into European cable that saw him lose billions of euros.
When Callahan first bought into Telenet in August 2002, his investment valued the cable operator at 944 million ($1.2 billion). What's more, Telenet's star since then has soared, with Ebitda in 2003 rising 178 percent to 230 million while revenue increased by 63 percent to 502 million.
Besides getting his hands on Callahan's Telenet holding for what appears to be a song, Malone also has the option to increase his stake in the Belgian company to up to 43 percent. Terms of the option were not disclosed.
Callahan had wanted to retain his stake and use the option to increase it to make it more valuable, sources said. But he was unable to find financing for such a move and was ultimately forced to sell to Malone at this apparently knockdown price.
For Malone, the transaction provides a valuable foothold in a highly advanced network operating in the Flanders region of Belgium. The deal also complements his existing operations in the much larger but neighboring French and Dutch markets.
"Telenet's management and shareholders have built a well-run cable operation that is successfully delivering video, data and voice services throughout the Flanders region in Belgium," Malone said in a statement.
Telenet's other shareholders include a group of Belgian municipalities, which owns a combined 34 percent stake; Belgian electric utility Electrabel SA, which has a 5 percent holding; and Belgian pension fund GIMV.
Some of the investors that entered Telenet alongside Callahan will retain small stakes. They include New York-based Evercore Partners Inc. and Merrill Lynch Capital Partners.
Malone's main European holding is Netherlands-based UGC Europe Inc., which is the Continent's largest cable operator by subscriber numbers.
In March this year, Malone agreed to pay $811 million for France's largest cable operator, Noos, which he plans to merge with another smaller French operator that he owns known as UGC France.
Liberty Media's financial advisers on the transaction were Lehman Brothers Inc. and Merrill Lynch & Co. Cable Partners declined to disclose its advisers.
A Cable Partners spokesman insisted that Denver-based Callahan will retain a London office and will continue to look at deals.
However, the exit from Telenet may well prove to be the last significant piece of business that Callahan does in Europe, one person familiar with the situation said.
Callahan began his career in telecoms nearly 40 years ago as a lineman but rose through the ranks to become, in the early 1990s, the London-based president of the international business of US West, a Baby Bell now owned by Denver-based Qwest Communications International Inc. It was in this post that his vision for a pan-European, U.S.-style cable network was born.
After launching Cable Partners in 1996, Callahan snapped up cable operators in Belgium, Germany and Spain in a series of highly leveraged deals worth about 9 billion.
Most of the transactions, including the purchase of two regional operators from Deutsche Telekom AG, were conducted at the top of the market. The German operators, North Rhine-Westphalia network ish GmbH and Kabel Baden-Württermberg GmbH & Co. KG, proved to be the most disastrous of the acquisitions and resulted in billions of euros being written down.
"It was the failure in Germany that really undermined the group's ability to succeed in other deals," a source close to Cable Partners said. "It was a very ambitious and exciting plan, and it was tantalizingly close to working. But in the end the money that was lost meant that it was always going to be very difficult to raise fresh finance."