Telenet sparks merger talk after ruling out shareholder payout

[September 25, 2014]  By Philip Blenkinsop

BRUSSELS (Reuters) - Belgian cable and telecoms group Telenet has ruled out further payouts to shareholders this year, sparking speculation it may be preparing to acquire one of its Belgian rivals and sending its shares sharply lower.

The market had been expecting a dividend of 4.50 euros, according to the SmartEstimate of Thomson Reuters StarMine, which weights analyst estimates according to their previous accuracy.

Telenet had said in July that its strong business growth and cash flow flexibility should translate into attractive future shareholder value and that its board would take a decision on shareholder remuneration towards the end of the third quarter.

In a statement on Thursday, the company said its board had decided not to propose any payouts at this stage beyond a 50 million euro ($63.7 million) share buyback announced at the start of the year.

It said it was doing so "in light of the current operating environment". A spokesman said this referred to market competition, without elaborating.

Last week saw the launch in Belgium of U.S. video streaming service Netflix.

Shares of Telenet, majority owned by U.S. cable operator Liberty Global, fell as much as 8.0 percent in early trading and were 4.0 percent lower at 42.82 euros at 0810 GMT, making them the second weakest on Euronext Brussels.

SOLID FUNDAMENTALS

KBC Securities analyst Ruben Devos cut his rating on the stock to "accumulate" from "buy" while keeping a 45 euro share price target. However, he said Telenet's net leverage ratio of total debt to core profit (EBITDA) was a comfortable 3.6 times.

This would only have increased to 4 times with the 4 euro per share dividend he had expected.

"The fundamentals are still solid," he said. "It could be related to possible M&A of cable assets, such as Voo in the south (of Belgium), or Numericable in Brussels. They want to increase their scale in terms of fixed cable."

Belgian mobile operator Mobistar was the largest riser in Brussels, up 6.3 percent at 15.04 euros, although Devos expressed doubt that Telenet would want to buy the company, which is majority-owned by France's Orange.

The Telenet spokesman declined comment on any speculation the company might be considering an acquisition.

Last year, Telenet returned 950 million euros to shareholders via a 7.90 euro per share payout and share buyback of up to 50 million euros.

Telenet is facing increased competition from incumbents such as Belgacom and now faces a challenge to its core TV business, with last week's launch of Netflix in Belgium.

Telenet, with 2 million TV subscribers, has responded by launching its own on-demand library and renewed its partnership with U.S. broadcaster HBO for exclusive access to hit series such as Game of Thrones.

(Editing by Barbara Lewis and David Holmes)

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