Liberty Global agrees €1.3bn deal to buy Base

Liberty Global has agreed to acquire a mobile operator for the first time, paying €1.33bn for Belgium's third-largest mobile operator Base. 

The cable group, whose major shareholder is US billionaire John Malone, has been buying assets across Europe and has started to offer quadplay services of broadband, pay-television, fixed-line and mobile. It will acquire Base through its majority-owned Belgian subsidiary Telenet. 

The deal reverses a longstanding strategy at Liberty to offer mobile services using networks owned by other companies, and has sparked renewed speculation about whether a deal could one day be forged with Vodafone.

A tie-up between the two has been often rumoured to create a pan-European telecoms and media business.

"This breaks the long -term policy of not directly owning mobile infrastructure," said Simon Weeden, analyst at Citi. "There are good reasons for Telenet to be an exception . . . but it seems likely that this will be seen as a positive for a Liberty/Vodafone tie up of some kind."

Base's current owner KPN had previously pulled a planned sale after failing to attract satisfactory offers, with France's Altice said to have expressed interest. 

The deal values Base, including debt, at 8.9 times its earnings before interest, taxation, depreciation and amortisation (ebitda) last year. Accounting for €145m of expected annual synergies, and €240m of integration costs and one-off investments, the multiple falls to five times this year's expected ebitda, Liberty said. 

Telecoms and cable groups across Europe have been grappling with whether to buy mobile operators, given the potential growth of quadplay services. Companies argue that customers who buy more than one product are less likely to cancel their service and generate higher margins. 

Britain's largest internet provider, BT, has agreed to pay £12.5bn for mobile operator EE. Sky, Europe's biggest pay-TV group by customers, has opted for a less capital-intensive approach - entering into a mobile virtual network operator (MVNO) agreement in the UK with Telefonica. 

Peter Boyland, an analyst at IHS Technology, said that "the current wave of consolidation in Europe coupled with incumbent operators such as KPN, Telefonica, and Orange looking to offload operations in mature markets could see Liberty making further mobile acquisitions".

Base has 3.3m mobile customers in Belgium, including 2.2m on pay-as-you-go arrangements. That will bolster Telenet, whose current MVNO deal has about 900,000 subscribers. 

"Elsewhere in Europe we will continue to focus primarily on our existing MVNO arrangements and rapidly developing WiFi networks to provide seamless mobile voice and data services to our customers," said Mike Fries, Liberty's chief executive. 

Charlie Bracken, Liberty's chief financial officer, said last month that the company would only look to buy mobile operators in countries where it had a "national footprint". That could mean further investments in the Netherlands, but not in the UK, where Liberty's cable subsidiary Virgin Media only reaches about half of households.

Base's revenues were €690m last year, once discontinued operations are excluded, accounting for less than one-tenth of KPN's turnover. 

The deal, which is subject to regulatory clearance, will reduce KPN's net debt to ebitda ratio by about 0.4 times, said analysts at BNP Paribas. 

Telenet, which is 56 per cent owned by Liberty, will issue €1bn of new debt to fund the deal. If that debt had been issued before the end of 2014, its leverage would have risen to approximately 4.5 times.

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