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Liberty Global may consider M&A, divestments amid mobile headwinds

International cable operator Liberty Global plc said continued headwinds in the European mobile market could prompt the company to look to M&A as a mobile entry opportunity or a chance to sell in some of its smaller markets.

"One of the main elements of value creation for us is smart and appropriate M&A activity," Liberty Global CEO Mike Fries said during an Aug. 8 earnings call.

"That should normally include exiting as well as buying in markets where we think we don't have a shot at being a scaled player," Fries explained.

He added that the wide gap between public and private market valuations would work in the group's favor in the event of a divestment.

"I am certain that the private market value of the assets we may choose to exit will be materially higher than the implied public market value of our stock," he told analysts.

Fries said the mobile business, which contracted 6%, remains in "transition" as the company attempts to offer quad-play bundles of television, broadband, fixed-line telephone and mobile services to consumers.

However, despite challenges, Fries did note that the company is beginning to see the "very real and tangible benefits" of converged fixed mobile offers in markets such as Belgium and the Netherlands. As such, he maintained the group is determined to stay the course as convergence gains ground in Europe.

Fries stressed that, "strategically, we cannot afford to stand still and we are not standing still."

Outside of any potential M&A, the company plans to continue to execute its mobile expansion, taking a market-by-market approach using the mobile virtual network operator model throughout Europe.

Revenues at Liberty Global Group, the company's European operations, were up 1.6% year over year to $3.66 billion, against a 6% increase in operating cash flow to $1.73 billion.

The company posted a second-quarter net loss of $637 million, compared to net earnings of $204 million in the year-earlier period. Operating income declined 5% year over year to $483 million in the second quarter.

Second-quarter organic revenue generating unit net additions at the company, which is controlled by American media mogul John Malone, slowed to 161,900, down 37.5% year over year. In addition, the European unit accrued 100,100 data and 77,900 voice net additions in the second quarter, compared with 150,800 and 147,700, respectively during the same period last year.

This was partly offset by the group losing fewer video subscribers in the second quarter, shedding 16,100 compared with 39,500 a year ago. Improved video performance in the United Kingdom and Ireland on a year-over-year basis, in particular, resulted in 78,000 additions in the second quarter, up 56% year over year.

Fries said the group's next-generation video platforms contributed to the strongest first half-year video performance since 2006. He added that the "steady and massive improvement" in video means the group is now hanging onto five times as many video subscribers every quarter than it did over the last two years.