Liberty Latin America to acquire Telefónica’s operations in Costa Rica

Thursday, July 30th, 2020 
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Strategic Combination Of Fixed And Mobile Operations

DENVER, Colorado — Liberty Latin America Ltd. (“Liberty Latin America” or “LLA”) (NASDAQ: LILA and LILAK, OTC Link: LILAB) today announced it has entered into a definitive agreement to acquire Telefónica S.A.’s (“Telefónica”) wireless operations in Costa Rica (“Telefónica Costa Rica”), one of Costa Rica’s largest mobile service providers. The all-cash transaction values Telefónica Costa Rica at an enterprise value of $500 million on a cash- and debt-free basis. This equates to an estimated multiple of 6.0x Telefónica Costa Rica’s fiscal year 2019 Adjusted OIBDA(1), including projected annual run-rate synergies(2).

Balan Nair, President and CEO of Liberty Latin America, commented, “We have had great success in Costa Rica through our 2018 investment in 80%-owned Cabletica, a leading fixed-provider in the country and one of LLA’s fastest growing businesses, and are excited to increase our investment in the country. Telefónica Costa Rica has delivered strong financial performance, including high single-digit top-line growth and strong double-digit Adjusted OIBDA growth from 2017-2019(3). Combined with Cabletica, we look forward to creating a leading integrated communications player providing customers in Costa Rica with high-quality value propositions and unparalleled customer service. This transaction comes at an attractive valuation, consistent with our disciplined approach towards M&A.”

Telefónica Costa Rica is Costa Rica’s second largest mobile service provider. As of June 30, 2020, the business had 2.3 million subscribers(4), and its mobile network currently has approximately 90% LTE population coverage.

Liberty Latin America intends for Telefónica Costa Rica to become part of the VTR credit pool, which will also include Cabletica, and to finance the acquisition (including fees and expenses) with incremental local borrowings and borrowings at VTR Finance N.V., targeting approximately 4x debt on the acquired asset’s Adjusted OIBDA. The remaining funding is anticipated to come from LLA liquidity including future free cash flow generation, as well as other forms of debt and/or equity capital.

The transaction is subject to certain customary closing conditions, including regulatory approvals, and is expected to close in the first half of 2021.

Advisory and financing services to Liberty Latin America on the transaction have been provided by JP Morgan, LionTree and Scotiabank.

1. Based on Adjusted OIBDA (defined as operating income before depreciation and amortization, share-based compensation, provisions and provision releases related to significant litigation and impairment, restructuring and other operating items) for the fiscal year ended December 31, 2019 at an exchange rate of USD/CRC of 580 in accordance with International Financial Reporting Standards (“IFRS”), as adjusted to (i) include certain lease costs that are capitalized as tangible assets under IFRS 16 in accordance with Telefónica Costa Rica’s IFRS accounting policies and that will be expensed as an operating cost in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and (ii) remove certain brand and management fees that won’t continue post-acquisition. Adjusted OIBDA represents LLA’s management’s best estimate based upon information obtained from Telefónica.
2. Projected annual run-rate synergies by 2023.
3. Based on the historical financial information of Telefónica Costa Rica. Similar to the multiple calculation discussed above, Adjusted OIBDA of Telefónica Costa Rica for the fiscal year ended December 31, 2019 was adjusted for the impacts of IFRS 16 to align with the accounting treatment under U.S. GAAP in determining the historical growth rate.
4. Operating statistics for Telefónica Costa Rica are based on Telefónica Costa Rica’s counting policies. Operating statistics are subject to change after the completion of the transaction once Telefónica Costa Rica’s statistics are presented in accordance with Liberty Latin America’s policies.

Links: Liberty Latin America; Telefónica