Liberty Global (LBTYA) Spins Off Latin American Business

Liberty Global plc LBTYA recently completed the spin-off of its Latin American and Caribbean operations into a new, independent, publicly-traded company — Liberty Latin America Ltd. Following the announcement, shares of Liberty Global rose 1.14% to $36.24 on Jan 2.

Liberty Latin America was previously a unit of Liberty Global under the LiLAC Group. The spin-off transformed each share of the LiLAC Group tracking stock into equity shares of the new company’s common stock.

Liberty Latin America will now operate as a leading telecommunications company in 20 countries including Chile, Puerto Rico, the Caribbean and other parts of Latin America, under the consumer brands VTR, Flow, Liberty, Mas Movil and BTC. It will cover 6.4 million homes, serving 5.3 million revenue generating units (RGUs) and 3.7 million mobile subscribers. The newly-formed company will have $3.7 billion in annual revenues. In addition, Liberty Latin America operates a sub-sea and terrestrial fiber optic cable network that connects over 40 markets in the region.

Balan Nair, former Chief Technology & Innovation Officer for Liberty Global, will become the President and CEO of Liberty Latin America. Liberty Global CEO, Mike Fries, will serve as Executive Chairman of the Liberty Latin America. The board of the new company is likely to include other members from the directors of the parent company.

Why the Spin-Off?

A corporate spin-off is an operational business strategy opted by a company to create a new business entity out of its existing divisions, subsidiaries or the subunits. It is a way of reorganizing administrative structure to rake in more profit. Businesses intending to streamline operations often sell less productive or unrelated subsidiary businesses as spin-offs.

The aforementioned spin-off was caused by declining revenues from the respective business units. Notably, hurricanes Irma and Maria damaged the company’s cable systems in Puerto Rico, the British Virgin Islands, Dominica, Anguilla and Turks and Caicos. The company’s third-quarter 2017 revenues down by $19 million in Puerto Rico and $3 million from Cable & Wireless Communications business, came at $908 million. The company estimates fourth-quarter 2017 revenues getting to fall $95-$125 million due to hurricane effects. This might continue in the first half of 2018.

Persistent lack of electrical power in many areas on the island hurts the company’s ability to provide service. Repairing property and equipment is expected to cost more than $150 million, some of which will be covered by insurance policies.

However, the new company is expected to perform better in the Latin American and Caribbean region with easy access to the required capital resources, shared services and expertise across products, technology and procurement. The new launch will create more value for shareholders. The spun-off companies are expected to be more profitable and valuable as independent entities.

Moreover, spin-offs help the parent company focus more on resources that have better long-term potential and higher prospects.

Zacks Rank & Price Performance

Currently, Liberty Global carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Liberty Global portrays an impressive price performance. In the past six months, the stock has gained 13.5% against the industry’s decline of 1.2%.

 

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