The Liberty Latin America Split And A Climate Change Warning?

Liberty Latin America – previously referred to as LiLAC and consisting of Liberty Global’s Latin America and Caribbean operations – is now a separate entity.

Let’s Recap:

Q4 2015: News of Liberty Global plan to acquire Cable and Wireless Communications (CWC), parent of Flow, for US $8.3b (almost double the 2015 GDP of Barbados).

Q4 2014: News of CWC plan to acquire Columbus Communications, parent of Flow, for US $3b.

Q1 2013: News of Columbus plan to acquire Karib Cable (KC). KC had recently started building out their network in Barbados and already had a foot-print in St. Lucia, Antigua and St. Vincent and the Grenadines.

Why The Split?

According to today’s press release:

Mike Fries, Executive Chairman of Liberty Latin America and CEO of Liberty Global, commented, “The split-off of our Latin American and Caribbean operations from Liberty Global will ensure that this new company will have access to the capital and resources necessary to achieve superior financial and strategic growth. I have tremendous confidence in Balan Nair’s leadership as well as the world-class board of directors and management team we have put in place. As Liberty Latin America charts its own course going forward, it will continue to benefit from its Liberty Global heritage and will have access to key shared services and expertise across products, technology, procurement and more. The launch of Liberty Latin America is an exciting moment for all shareholders and a clear confirmation of the opportunity for value creation in the Latin American and Caribbean

Balan Nair, President and Chief Executive Officer of Liberty Latin America, stated, “Today marks an important milestone for Liberty Latin America as we begin the path forward as an independent company focused squarely on the region. I see tremendous opportunity to bring world-class technology, innovation and scale to our operations, expand our network coverage, and deploy exciting new service offerings to our residential and business customers. In a region that is currently served by a highly fragmented range of operators and with customer penetration rates roughly half of more mature markets, we see significant prospects for long-term growth both organically as well as through strategic M&A.”

There are, of-course, other views on the impact and reasons behind the split. The Irish Times had this to say:

The move is likely to add to pressure on Digicel, the telecommunications group owned by businessman Denis O’Brien. The company has been looking to bounce back after booking a $50 million restructuring charge at the end of its last financial year linked to its cost-cutting programme that included reducing its workforce by 25 per cent.

While Seeking Alpha, a popular finance and investment blog, offered this assessment:

M&A, misalignment of interests, poor operating results, and Acts of God have punished shareholders over the last year and a half. Now, shares of LILAK trade lower than public opinion on Trump’s handling of Puerto Rico. However, ownership changes, a split out from LBTYA, and current price have de-risked the investment and shares are materially underpriced despite the negative impact of Hurricane Maria.

The “Acts of God” reference piqued my interest. Hurricanes Irma and Maria severely impacted the following CWC markets: BVI, Dominica, Anguilla and Turks and Caicos (resulting in several million dollars, USD, in revenue losses and expenses).

C&W John Reid had this to say:

“Clearly Irma was an historic event, and we have suffered some damage to both fixed and mobile networks in our markets that bore the full force of the storm,” John Reid, C&W’s CEO said. “First and foremost, our initial assessment indicates that our people are fully accounted for in the affected countries. Our networks proved very resilient during the passage of the storm, and at times we were the only network operating in some of the impacted territories. I’m pleased to report that our mobile network in Antigua and Anguilla are back up to pre-Irma usage levels. There was, however, significant impact to our systems and services in Antigua and Barbuda, the British Virgin Islands and the Turks & Caicos Islands.

But what if this “historic event” is the first of many to come? What if the Caribbean region starts to experience a change in the frequency of, and strength of hurricanes, as a direct result of climate change? Putting aside the risk to life and property for a second, the decision to invest in the region – either directly or indirectly – will be clear: Thanks, but no thanks! (recall Seeking Alpha’s commentary).

Was the split a direct result of climate change? NO. Plans for the split were apparently in train long before the hurricanes hit. Were concerns over climate change and the Caribbean ever raised and if so, did they play any role whatsoever in the eventual decision to split? GOOD QUESTION.

To be fair, other entities are probably looking at the Caribbean and climate change in a different light post Irma and Maria: The majority of profits for reinsurance companies – companies that insure insurance companies – were wiped out as a result of the 2017 Atlantic hurricane season. In addition to the pain and suffering felt during and after the passage of the hurricanes, Caribbean individuals and businesses can now look forward to increased insurance costs.

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