Acquisitions and Dispositions

6 Months Ended

Jun. 30, 2020

Acquisitions and Dispositions [Abstract]

Pending Joint Venture Transaction

On May 7, 2020, we entered into a Contribution Agreement (the Contribution Agreement) with, among others, Telefonica SA (Telefonica). Pursuant to the Contribution Agreement, Liberty Global and Telefonica agreed to form a 50:50 joint venture (the U.K. JV), which will combine Virgin Media’s operations in the U.K. (the U.K. JV Entities) with Telefonica’s mobile business in the U.K. to create a nationwide integrated communications provider. In our segment presentation, the U.K. JV Entities are included in our U.K./Ireland segment.

In connection with the transaction, we expect to complete certain recapitalization financings prior to closing. The outstanding third-party debt associated with the U.K. JV Entities will be contributed in full to the U.K. JV, and Telefonica’s business in the U.K. will be contributed on a debt-free basis. The transaction will not trigger a change of control under Virgin Media’s debt agreements.

Effectively all of Liberty Global’s U.K. tax capital allowances and tax loss carryforwards, which primarily resulted from prior infrastructure investments, reside in the U.K. JV Entities and, therefore, will be available for use solely within the U.K. JV upon the closing of the transaction.

At closing, we expect to pay Telefonica an equalization payment estimated to be approximately £2.5 billion ($3.1 billion), as adjusted for debt and debt-like items and certain working capital and other adjustments. After taking into account the recapitalizations and the equalization payment, Liberty Global is expected to receive an estimated £1.4 billion ($1.7 billion) in total, including approximately £800 million ($1.0 billion) from the recapitalization of Virgin Media’s retained and 100.0% owned Ireland business.

Pursuant to the framework agreement that we expect to enter into in connection with the closing of the U.K. JV, our company and Telefonica will provide certain services to the U.K. JV. The annual charges to the U.K. JV will ultimately depend on the actual level of services required by the U.K. JV.

The U.K. JV intends to distribute available cash to the shareholders periodically and is expected to undertake periodic further recapitalizations, subject to market and operating conditions, to maintain a target net leverage ratio ranging between 4.0 and 5.0 times EBITDA (as defined in the applicable shareholders’ agreement). Our company will retain the cash generated by the operations of the U.K. JV Entities through the closing date and is required to fund any deficit in the associated defined pension plans that arise from the next triennial actuarial valuation.

The consummation of the transaction contemplated by the Contribution Agreement is subject to certain conditions, including competition clearance by the applicable regulatory authorities. The Contribution Agreement also includes customary termination rights, including a right of the parties to terminate the agreement if the transaction has not closed within 24 months following the date of the Contribution Agreement, which may be extended by six months under certain circumstances. Following completion of the transaction, we expect to account for our 50% interest in the U.K. JV as an equity method investment.

Effective with the signing of the Contribution Agreement, we began accounting for the U.K. JV Entities as held for sale. Accordingly, we ceased to depreciate or amortize the long-lived assets of the U.K. JV Entities. We have not presented the U.K. JV Entities as a discontinued operation as this transaction does not represent a strategic shift that will have a major effect on our financial results or operations. The carrying amounts of the major classes of assets and liabilities that are classified as held for sale at June 30, 2020 are summarized below (in millions):



Assets:
Current assets (a)	$	1,194.3
Property and equipment, net	7,143.3
Goodwill	7,180.9
Other assets, net	3,512.0
Total assets	$	19,030.5

Liabilities:
Current portion of debt and finance lease obligations	$	2,318.6
Other accrued and current liabilities	1,775.5
Long-term debt and finance lease obligations	13,108.6
Other long-term liabilities	930.6
Total liabilities	$	18,133.3

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(a)	Amount does not include the cash and cash equivalents of the U.K. JV Entities, as such cash and cash equivalents will be retained by Liberty Global upon the formation of the U.K. JV and are therefore not classified as held for sale.

Acquisition

De Vijver Media. Prior to June 3, 2019, Telenet owned a 50.0% equity method investment in De Vijver Media NV (De Vijver Media), which provides content production, broadcasting and advertising services in Belgium. On June 3, 2019, Telenet acquired the remaining 50.0% ownership interest in De Vijver Media (the De Vijver Media Acquisition) for cash consideration of €52.5 million ($58.9 million at the transaction date) after post-closing adjustments.

Dispositions

Vodafone Disposal Group. On July 31, 2019, we completed the sale of our operations in Germany, Romania, Hungary and the Czech Republic to Vodafone. The operations of Germany, Romania, Hungary and the Czech Republic are collectively referred to herein as the “Vodafone Disposal Group.” After considering debt and working capital adjustments (including cash disposed) and €183.7 million ($205.8 million at the transaction date) of cash paid by our company to settle centrally-held vendor financing obligations associated with the Vodafone Disposal Group, we received net cash proceeds of €10.0 billion ($11.1 billion at the applicable rates). Pursuant to the agreement underlying the sale of the Vodafone Disposal Group, we transferred cash to fund certain third-party escrow accounts (the Vodafone Escrow Accounts) pending the fulfillment by our company of certain terms of the agreement. The current and long-term portions of the receivables associated with the Vodafone Escrow Accounts are included in “other current assets” and “other assets, net”, respectively, on our condensed consolidated balance sheets. At June 30, 2020 and December 31, 2019, the aggregate balance of the Vodafone Escrow Accounts was $295.2 million.

In connection with the sale of the Vodafone Disposal Group, we have agreed to provide certain transitional services to Vodafone for a period of up to four years. These services principally comprise network and information technology-related functions. During the six months ended June 30, 2020, we recorded revenue of $76.8 million associated with these transitional services.

For information regarding certain tax indemnities we provided in connection with the sale of the Vodafone Disposal Group, see note 16.

UPC DTH. On May 2, 2019, we completed the sale of UPC DTH to M7 Group (M7). After considering debt and working capital adjustments (including cash disposed), we received net cash proceeds of €128.9 million ($144.1 million at the applicable dates).

In connection with the sale of UPC DTH, we have agreed to provide certain transitional services to M7 for a period of up to two years. These services principally comprise network and information technology-related functions. During the six months ended June 30, 2020 and 2019, we recorded revenue of $1.0 million and $0.4 million, respectively, associated with these transitional services.

Presentation of Discontinued Operations

The operations of the Vodafone Disposal Group and UPC DTH are presented as discontinued operations in our condensed consolidated statements of operations and cash flows for the three and six months ended June 30, 2019 and are summarized in the following table. These amounts exclude intercompany revenue and expenses that are eliminated within our condensed consolidated statement of operations. For information regarding our basic and diluted weighted average ordinary shares outstanding, see note 15.



	Vodafone Disposal Group			UPC DTH (a)		Total
	in millions, except per share amounts
Three months ended June 30, 2019
Revenue	$	868.9		$	9.0	$	877.9
Operating income	$	514.0		$	2.1	$	516.1
Earnings before income taxes	$	435.2		$	2.2	$	437.4
Income tax expense	(121.9		)	—		(121.9		)
Net earnings attributable to Liberty Global shareholders	$	313.3		$	2.2	$	315.5
Basic and diluted earnings from discontinued operations attributable to Liberty Global shareholders per share						$	0.43

Six months ended June 30, 2019
Revenue	$	1,727.6		$	36.7	$	1,764.3
Operating income	$	1,009.5		$	10.7	$	1,020.2
Earnings before income taxes	$	867.3		$	9.5	$	876.8
Income tax expense	(238.7		)	—		(238.7		)
Net earnings attributable to Liberty Global shareholders	$	628.6		$	9.5	$	638.1
Basic and diluted earnings from discontinued operations attributable to Liberty Global shareholders per share						$	0.86

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(a)

Includes the operating results of UPC DTH through May 2, 2019, the date UPC DTH was sold.