Liberty Global’s buyback has grounds to go large

Set it free. Liberty Global wants to convince investors it suffers from an unfair discount to the sum of its parts. Announcing an $800 million share buyback last month, CEO Mike Fries joked that he was taking the group private “very slowly”. Since 2017, the $7 billion U.S.-listed telco has bought back 60% of its shares. With the stock off 12% since his Feb. 16 announcement, Fries has good reason to go the whole way and delist.

Liberty’s low valuation reflects its fiddly conglomerate structure, a legacy of two decades of acquisitions that have created a mishmash of joint ventures and fully owned units, not to mention a 5% stake in UK-based Vodafone that has already generated a $300 million paper loss since it was acquired last year. The main contributors of Liberty’s $7.4 billion of consolidated revenue last year were Switzerland’s Sunrise and Belgium’s Telenet. Liberty also has 50% of the $18 billion combined revenue of joint ventures VMO2, a British operator co-owned with Spain’s Telefónica, and VodafoneZiggo, a Dutch-based unit it operates alongside its UK rival.

In an attempt to improve the valuation of his conglomerate, Fries has announced a 100% spinoff of Sunrise. The unit could be valued at $8 billion, based on the 7 times EBITDA multiple rival Swisscom trades at. That compares to the $7.4 billion paid by Liberty four years ago.

Liberty Global says no conclusion should be drawn from its CEO’s quip. A spinoff would take the group’s valuation closer to the $48 a share Fries reckons it is worth. On the same 5.6 EBITDA multiple that rival Vodafone trades at, VMO2 would fetch $25 billion. VodafoneZiggo could be worth more than $15 billion on the 7.8 times EBITDA multiple at which its peer KPN trades.

That’s about $20 billion of enterprise value consolidated at Liberty. Throw in Sunrise and Telenet, which may be worth some $4.4 billion when compared to local telco provider Proximus, and Liberty’s enterprise value may top $32 billion. Deduct $15 billion worth of debt and Liberty’s equity can be estimated at $17 billion, or about $44 a share. Liberty then trades at a 60% discount.

Not all analysts are this enthusiastic – Morningstar assumes a fair value of only $28 a share, based on discounted cash flows. Taking the group private would also make it simpler. Liberty Global has become too confusing to understand – a holding company listed in New York and based in Bermuda with headquarters in London, Denver and Amsterdam, which books revenue in euros, pounds and Swiss francs and reports in U.S. dollars.

Back in 2021 Iliad founder and controlling shareholder Xavier Niel took his company private because he wasn’t happy with the company’s market valuation. Fries might want to take his own joke seriously and follow suit.