Liberty Latin America sees ‘attractive pipeline’ for M&As

After buying AT&T‘s Puerto Rico and US Virgin Islands operations and Telefónica's in Costa Rica, Denver-headquartered Liberty Latin America sees "an attractive pipeline of new opportunities in the region," CEO Balan Nair (pictured) said in an earnings call. 

"There are lots of opportunities out there, and our pipeline is quite active, but we're gonna be very disciplined. Our goal is not to get bigger, [it] is to create value."

The focus, for now, is on closing the recently announced deals, the executive said.

In October, Liberty bought for US1.95bn AT&T’s operations in the two US territories. The estimate was that the deal would conclude in up to nine months, considering analysis by regulators and antitrust agencies. Now, Nair expects the deal to be completed in the Q4.

Last week, the group expanded its presence in Costa Rica with the acquisition of Telefónica’s mobile business for US$500mn.

Telefónica Costa Rica is the second largest mobile service provider in the territory, with 2.3mn subscribers as of June 30, and its mobile network covers around 90% of 4G connections.

The deal came only a couple of months after a controversial move in which Millicom pulled out of an agreement with Telefónica to buy the operation for US$570mn.

Liberty also announced a US$350mn rights issue to finance the acquisition.

The company wants that Telefónica’s Costa Rica operation becomes part of VTR's fixed business, which also includes Cabletica, bought in 2018.

“This combination will create a fantastic opportunity to deliver a leading convergent offer in one of the region’s best markets,” the CEO said about the deal.

The transaction is due to closing conditions and regulatory scrutiny and is expected to be completed in the first half of 2021.

According to Nair, both operations (AT&T's and Telefónica's) comprise mostly postpaid customers, which should bring greater added-value to the group's mobile segment.

OPERATIONS

In operational terms, the second quarter was not good for Liberty Latin America.

The group posted revenues of US$849mn in Q2, down 13.6% from the same period a year ago. Hit by the COVID-19 crisis, the company reported a net loss of US$393mn in the quarter, widening from a loss of US$116mn in the year-ago period.

The telco was also affected by a US$47mn negative foreign exchange effect, which offset organic growth from Liberty Puerto Rico.

“Following a strong first quarter, as anticipated our performance in Q2 was negatively impacted by the pandemic,” with April being the lowest point, said the CEO. In May, the company had already dropped its 2020 guidance due to the crisis.

But Q2 had also some silver linings. Among the highlights were Puerto Rico, where the group saw record subscriber numbers.

Liberty Puerto Rico saw its best-ever quarter for revenue generation units (RGU, subscriptions), with 33,500 RGU additions, outpacing even other telecom service providers in net adds.

Meanwhile, Cable and Wireless (C&W) experienced the greatest headwinds with declining RGUs driven by Panama, where it experienced the most restrictive lockdowns across all of its markets, according to the executive.

PANDEMIC EFFECTS

In the Caribbean islands, economies are typically tourism-dependent, which hit the company’s C&W operations.

Nair also pointed out that rules are in place that prohibit service interruption for defaulting users in Panama, where the company saw losses of 45,000 RGUs.

Although Puerto Rico’s restrictions were relaxed, curfews should remain in effect until mid-August. "Like I said, this virus is unpredictable," the CEO said.

In Jamaica, tourism is slowly getting back on track and Liberty’s sales teams are back on the ground, according to the executive. The company saw 26,000 net adds and continues investments in network expansions.

In Chile, “things are not getting much better”, said the CEO, as sales have been impacted by the continuing quarantine measures. Operations were also affected by the weakness of the Chilean peso.

Chile's VTR/Cabletica added 12,000 fixed RGUs in Q2, with VTR seeing growth of 5,000 RGUs overall, thanks largely to broadband additions of 19,000.

However, they were partially offset by 11,000 fixed line telephony and 3,000 video streaming RGU losses. In mobile, VTR lost 3,000 subscribers. Cabletica in turn added 6,000 RGUs, driven by broadband and streaming.