Warburg Could Sell Off FiberNet

According to Bloomberg, 'three people familiar with the plan' have said that US-based private equity firm, Warburg Pincus, could sell FiberNet Communications, its Central and East European cable operator. They say that Warburg Pincus has hired Morgan Stanley to consider informal offers that value FiberNet at around EUR1bn (US$1.4bn), and may have received 'unsolicited approaches from unidentified parties'.

FiberNet has cable operations in Hungary, Bulgaria and Ukraine. The company does not regularly release operational data, but Warburg Pincus did report that, at the end of 2006, it had 180,000 cable TV subscribers in Hungary, 200,000 in Bulgaria and 125,000 in Ukraine.

In Hungary, FiberNet is one of the big four cable operators in a country where cable broadband is driving the country's broadband sector growth. Demand for double- and triple-play bundles is soaring, leaving FiberNet well placed to add revenue generating units (RGUs). However, competing with the likes of UPC Hungary and T-Kabel, the two largest cable operators that are backed by powerful regional players, FiberNet may begin to struggle to maintain momentum going forward. The popularity of DTH and IPTV will compound this problem as competition from the ADSL sector grows.

In Bulgaria FiberNet owns Eurocom, the country's second largest cable operator. Last year Eurocom was given permission to take over its larger rival CableTEL, but the deal eventually fell through, reportedly because Warburg Pincus failed to raise the necessary capital amid the global financial crisis. However, the two parties were rumoured to still be interested in pursuing the merger. The sale of FiberNet would all but put an end to the proposed merger, unless CableTEL's owner, UK-based Ramford Alliance, made a counter offer.

The Ukrainian broadband market is also bustling with potential. Years of underinvestment from incumbent Ukrtelecom have left the sector underdeveloped, leaving opportunities for alternative operators, particularly in major urban centres. Entering this potentially lucrative market should prove an attractive proposition.

Despite the promise of FiberNet's markets, the global economic downturn and credit crunch pose a threat to prospective bidders' willingness to acquire the company. Liberty Global, the owner of UPC Broadband, could be interested as the Hungarian operation compliments UPC Hungary, while it would also gain access to two new markets. Entering Hungary and Bulgaria would also suit Telekom Slovenije's South East Europe expansion plans. Alternatively, Warburg Pincus could split up FiberNet's operations in different countries and look to sell them separately.

This article is tagged to:
Sector: Telecommunications
Geography: Europe, Hungary, Ukraine

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