Digicel faces new threat via rival’s deal talks

Just two weeks after it abandoned a flotation in New York, Denis O'Brien's Caribbean telco Digicel now faces the prospect of getting squeezed in a battle between two of the world's biggest telecoms tycoons.

US billionaire John Malone's Liberty Global group is in talks to acquire Cable & Wireless Communications, Digicel's key rival in the Caribbean, for about £3.7 billion (€5.1 billion), it emerged last night.

A deal would put CWC in a better position to compete with Digicel's other significant mobile rival, America Movil, which is owned by the Mexican Carlos Slim, the world's richest man.

If Liberty were to conclude a deal for CWC, it could potentially spark a regional price war in the mobile, fixed-line and cable television markets, making life more difficult for Digicel as it attempts to move away from a reliance on mobile revenues towards fixed-line customers.

Infrastructure investments

Prior to the decision to pull its flotation, Mr O’Brien’s told potential investors Digicel has invested $1.5 billion in new infrastructure in the past few years. The company also has debts of about $6.5 billion.

A spokesman for Digicel declined to comment on the potential ramifications for Mr O’Brien’s company of a CWC-Liberty Global deal.

CWC and Liberty Global both confirmed Mr Malone’s company had entered into discussions about a possible cash-and-shares offer for the group, which had a market capitalisation of £2.5 billion before news of the bid emerged.

Shares in London-listed CWC rose by a fifth yesterday afternoon, taking the value of the company’s shares to more than £3 billion.

The two companies have been in talks for some time about bringing together CWC’s strong position in the Caribbean with Liberty’s operations in Chile and Puerto Rico, said one person familiar with the situation.

Talks have centred around a price of £3.7 billion, they said, which would represent a significant premium to the share price. In addition, Liberty would assume CWC’s net debt, which was about £1.7 billion as of June.

CWC cautioned that there was no “certainty that any firm offer will be made nor as to the terms on which any firm offer might be made”.

Shareholding

Mr Malone, Liberty Global’s chairman and largest shareholder, already owns 19 per cent of CWC following its $3 billion acquisition of

Columbus

International, a Caribbean and Central American telecoms group which he backed. The other owners of the company also own about 16 per cent of CWC shares.

A person close to the talks said Mr Malone would be in a strong position to launch a formal offer given this potential block of shareholders in support of a strategy to bring the groups together. The deal is expected to be agreed in the next few weeks.

Liberty has 1.5 million customers in Puerto Rico and Chile, while CWC can bring complementary businesses in countries such as Panama as well as its additional operations across the Caribbean.

An acquisition by Liberty would mark the latest twist in the 150-year-old history of the Cable & Wireless group, which emerged from the first Atlantic cable companies set up in the 1860s.

CWC was created as the holding company for international business after a 2010 demerger from Cable & Wireless Worldwide, the British telecoms arm that was acquired by Vodafone. (Additional reporting: Financial Times)