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Liberty Shows Some Discipline

Sometimes the deals you don’t make have as much impact as those you do. Case in point: Liberty Global Inc.’s decision to back away from the auction for No. 2 Dutch cable company Essent Kabelcom. Liberty Global, the largest cable company in the Netherlands, was expected to be one of the front-runners for Essent, but backed off after it said it didn’t believe it could meet the demands of Essent’s workers council in the case of a takeover. On Aug. 2, private-equity player Warburg Pincus/Cinven announced its acquistion of Essent for $3.3 billion. Liberty stock rose 56 cents on the news, to $22.02.

Wachovia Securities cable and satellite analyst Jeff Wlodarczak wrote in a research report last week that Liberty Media Corp.’s decision to back away from the deal highlights the European cable giant’s discipline and that the price paid for Essent accentuates the overall value of Liberty Global’s own assets.

Wlodarczak estimated that the Essent deal represents about 10.5 times operating cash flow and is “yet another indication that the private market places a much higher value on Liberty’s assets than the public market,” he wrote. Liberty Global’s recent deals to sell operations in France, Norway and Sweden fetched prices ranging from 11.4 times operating cash flow to 9.1 times, he added.

“We believe over time this gap will narrow on continued strong Liberty Global results,” Wlodarczak wrote.