Iliad to pay less than expected for UPC Poland

Iliad has hammered out a €1.5 billion deal for UPC Poland, which is slightly less than it offered to pay when it first made overtures to parent company Liberty Global in the summer.

The expansionist French telco announced that its Polish subsidiary Play, acquired as recently as last year, will acquire the whole of UPC Poland at an enterprise value of 7 billion zloty, or around €1.53 billion.

We knew the deal was coming. In July both companies quietly disclosed that Iliad had made a non-binding 7.3 billion-zloty offer for the UPC unit and that talks between them were ongoing. The final purchase price is slightly, but not significantly, below that initial offer, but Iliad must be happy with the outcome nonetheless.

For Iliad and Play, the deal is all about growing fibre coverage. For Liberty Global, the deal allows it to monetise the investments it has made in fibre.

“The acquisition of UPC Poland comes with a willingness to accelerate investment in fibre network. At Iliad/Play we are determined to invest in next-generation mobile and broadband networks and services,” said Thomas Reynaud, CEO of Iliad Group.

“This transaction highlights, yet again, the significant value of fibre-rich HFC networks in Europe, as well as the substantial synergy benefits inherent in fixed-mobile convergence mergers,” said Mike Fries, chief executive of Liberty Global, in a separate statement.

Fries said that Liberty Global will bring in around US$600 million in cash proceeds from the sale, net of debt repayment. The cash will be used for general corporate purposes, possibly including reinvestment into the business and to support share buybacks.

“As ever, we remain squarely focused on value creation and are pleased with the premium valuation we received for our Polish business, providing a strong return for Liberty Global shareholders,” Fries said.

The value of the deal represents a 9.3x multiple of UPC Poland’s EBITDAaL for 2020, or around 7x after revenue and cost synergies. That’s not a bad deal for Liberty Global.

The companies expect the deal to close in the first half of next year, presuming they get the go-ahead from the regulators, that is.

Play is Poland’s second-largest mobile operator while UPC is its number two fixed-line firm, thus the merged entity would be a solid second-placed full service operator, behind Orange. Without trying to second-guess the country’s regulatory body the Office of Electronic Communications, known locally as UKE, it appears the merger would enhance competition rather than obstruct it.

The smart money is on UPC Play – the parties have yet to comment on branding – getting uber-competitive before 2022 is out.

As Play chief executive Jean-Marc Harion puts it: “Play and UPC will join their forces to create a strong convergent operator in Poland.”