LIBERTY LATIN AMERICA AND MILLICOM AGREE TO COMBINE OPERATIONS IN COSTA RICA

Rhea-AI Summary

Liberty Latin America (LLA) and Millicom have agreed to combine their operations in Costa Rica, creating a joint venture with LLA holding approximately 86% and Millicom 14%. The combined entity had an Adjusted OIBDA of $255 million, over 440,000 broadband subscribers, and net debt of $533 million as of December 31, 2023. This merger aims to accelerate fiber network expansion, enhance competition, and improve services for Costa Rican consumers.

The transaction is expected to close in the second half of 2025, subject to regulatory approvals. The combined company will focus on transitioning to Fiber-to-the-Home (FTTH) technology, offering high-speed services, and driving innovation in the telecommunications sector.

Positive

• Creation of a scaled platform with potential for accelerated investments in fiber network expansion
• Combined Adjusted OIBDA of $255 million as of December 31, 2023
• Over 440,000 broadband subscribers in the combined operations
• Potential for enhanced competition and improved services in the Costa Rican market
• Opportunity for accelerated transition to Fiber-to-the-Home (FTTH) technology

Negative

• Net debt of $533 million in the combined operations as of December 31, 2023
• Regulatory approvals required, which could delay or prevent the transaction's completion

Insights

Financial Analyst

This merger between Liberty Latin America and Millicom in Costa Rica represents a significant consolidation in the telecommunications sector, with potential far-reaching implications for the market dynamics and competitive landscape.

The combined entity will have a substantial market presence, with over 440,000 broadband subscribers and an Adjusted OIBDA of approximately $255 million. This scale provides a strong foundation for future growth and investment, particularly in fiber network expansion.

From a financial perspective, the net debt of $533 million is notable. While this level of debt is not uncommon in capital-intensive telecom operations, it will be important to monitor how the combined entity manages this debt load while simultaneously investing in network upgrades.

The all-stock nature of the deal, with Liberty Latin America holding 86% and Millicom 14% of the joint operations, suggests a strategic focus on long-term value creation rather than immediate cash considerations. This structure allows both companies to participate in the potential upside of the combined entity without straining their cash reserves.

Investors should pay close attention to:

• The potential for cost synergies and operational efficiencies
• The pace and scale of fiber network investments
• Any regulatory conditions that may be imposed on the merger
• The impact on market competition and pricing dynamics

Overall, this merger could strengthen the competitive position of both companies in Costa Rica, potentially leading to improved financial performance and shareholder value in the medium to long term.

Telecommunications Expert

The proposed merger between Liberty Latin America and Millicom in Costa Rica is a strategic move that could significantly reshape the country's telecommunications landscape. This consolidation aims to create a more robust platform for accelerated fiber network deployment, which is important in today's rapidly evolving digital economy.

Key technological implications include:

• Accelerated FTTH (Fiber-to-the-Home) transition: This merger could expedite the rollout of high-speed fiber networks, potentially leapfrogging Costa Rica's digital infrastructure.
• Enhanced service quality: The combined resources and expertise should lead to improved network performance and customer experience.
• Increased competition in fiber: While the merger reduces the number of major players, it may paradoxically intensify competition in the fiber segment by creating a stronger challenger to incumbent providers.

The focus on fiber network expansion is particularly noteworthy. As global internet traffic continues to surge, fiber networks are becoming increasingly critical for handling high-bandwidth applications like 4K streaming, cloud gaming and emerging technologies such as AR/VR.

However, the success of this merger will largely depend on effective integration of the two companies' existing networks and technologies. The ability to harmonize different systems and operational practices will be important for realizing the promised benefits of accelerated investment and improved services.

From a market perspective, this consolidation could potentially lead to more competitive pricing and innovative service bundles, as the combined entity seeks to leverage its expanded scale and capabilities to attract and retain customers in a fiercely competitive market.

Market Research Analyst

The merger between Liberty Latin America and Millicom in Costa Rica presents a fascinating case study in market consolidation within a developing telecommunications market. This move is likely to have significant implications for market dynamics, consumer choice and competitive positioning.

Key market considerations include:

• Market concentration: The merger will reduce the number of major players, potentially raising concerns about market power. However, the companies argue that this will actually increase competition in the fiber segment.
• Consumer impact: The promise of accelerated fiber network deployment could lead to improved service quality and potentially more competitive pricing for high-speed internet services.
• Digital divide: Expanded fiber networks could help bridge the digital divide in Costa Rica, particularly if the combined entity extends coverage to underserved areas.

The timing of this merger is particularly interesting, coming at a point when Costa Rica is undergoing rapid technological advancement in its telecom sector. This suggests that both companies see significant growth potential in the market and are positioning themselves to capitalize on increasing demand for high-speed connectivity.

From a competitive standpoint, the combined entity will likely be better positioned to compete against both traditional telecom providers and potential new entrants, including global tech giants that are increasingly interested in the telecommunications space.

However, the success of this strategy will depend on several factors:

• The regulatory environment and any conditions imposed on the merger
• The ability to effectively integrate operations and cultures
• The pace of technological change and potential disruptions in the telecom sector

Investors and industry observers should closely monitor how this merger impacts market shares, pricing trends and the overall competitive landscape in Costa Rica's telecommunications sector over the coming years.

LIBERTY LATIN AMERICA AND MILLICOM AGREE TO COMBINE OPERATIONS IN COSTA RICA

TRANSACTION TARGETS GREATER INVESTMENT IN FIBER NETWORKS TO DELIVER ENHANCED SERVICES AND CUSTOMER EXPERIENCE

Denver, Colorado and Luxembourg – August 1, 2024: Liberty Latin America Ltd. (“Liberty Latin America” or “LLA”) (NASDAQ: LILA and LILAK, OTC Link: LILAB) and Millicom International Cellular S.A. (“Millicom”) (NASDAQ U.S.: TIGO, Nasdaq Stockholm: TIGO_SDB) today announced that the parties have entered into an agreement to combine the companies’ respective operations in Costa Rica. Under the terms of the all-stock agreement, Liberty Latin America and its minority partner in Costa Rica will hold an approximate 86% interest and Millicom 14% in the joint operations, with the final ownership percentage confirmed at closing.

As of December 31, 2023, the combined operations had Adjusted OIBDA¹ of approximately $255 million², more than 440,000 broadband subscribers, and net debt of $533 million³. 

The transaction reinforces the parties’ commitment to Costa Rica by creating the opportunity for a scaled platform and accelerated investments in fiber network expansion. In a market that is undergoing rapid technological advancements with the deployment of fiber networks by multiple operators, this combination would increase fiber competition and promote high-quality, good value services and access to the digital economy for all Costa Ricans. 

Balan Nair, President and CEO of Liberty Latin America, commented, “Costa Rica is a great country to operate in and Liberty Costa Rica is a strong business for us. By combining Liberty and Tigo, the fixed operations will accelerate the transition to FTTH and will enable us to deliver exceptional high-speed services for consumers, provide enhanced customer experiences, drive innovation, and offer growth opportunities for our people. With this transaction, Liberty Costa Rica will continue to be a leading connectivity operator in the market.”

Mauricio Ramos, Chair, Millicom, said, “Our combined operations would significantly benefit the telecommunications sector by enhancing fiber network investment to help accelerate Costa Rica's technological evolution in a highly competitive market. This merger is expected to generate new efficiencies and improve commercial offerings, providing customers with access to mobile services and premium content. It creates a stronger, more competitive entity with high investment capacity to meet the accelerated technological changes, network expansion, and service improvements, ensuring that long-term market conditions remain competitive while maintaining high-quality and valuable services for our customers in Costa Rica.”

The transaction is subject to customary closing conditions, including regulatory authorizations, and we expect the transaction to be completed during the second half of 2025. 

Liberty Latin America was advised by JP Morgan, while Millicom was advised by Aldo J. Polak and FTI Consulting.

 

About Liberty Latin America

Visit: www.lla.com

About Millicom

Visit: www.millicom.com

For more information, contact:

Liberty Latin America Investor Relations Kunal Patel, ir@lla.com Liberty Latin America Media Relations Kim Larson, llacommunications@lla.com

Millicom Investor Relations Michel Morin, investors@millicom.com Millicom Media Relations Sofia Corral, press@millicom.com

¹Based on the combined 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, 2023 of LLA’s Costa Rican operation in accordance with accounting principles generally accepted in the United States (U.S. GAAP), and Millicom’s Costa Rican operation in accordance with International Financial Reporting Standards (“IFRS”), as adjusted to include certain lease costs that are capitalized as tangible assets under IFRS 16 in accordance with Millicom’s IFRS accounting policies and that will be expensed as an operating cost in accordance with U.S. GAAP.

²140 billion Costa Rica Colons at representative exchange rate of 545:1 as of December 31, 2023.

³290 billion Costa Rica Colons at representative exchange rate of 545:1 as of December 31, 2023.

FORWARD LOOKING STATEMENT

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding the timing, benefits and expected impact of the transaction and other information and statements that are not historical fact. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include, but are not limited to, events that are outside of our control, such as natural disasters and pandemics, our ability to obtain regulatory approvals for the transaction as well as satisfying other conditions to closing, as well as other factors detailed from time to time in our filings with the Securities and Exchange Commission, including our most recently filed Form 10-K and Form 10-Q. These forward-looking statements speak only as of the date of this press release. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

FAQ

What is the ownership structure of the new combined operations in Costa Rica?

Liberty Latin America and its minority partner will hold approximately 86% interest, while Millicom will hold 14% in the joint operations. The final ownership percentage will be confirmed at closing.

What are the key financial figures of the combined TIGO and Liberty operations in Costa Rica?

As of December 31, 2023, the combined operations had an Adjusted OIBDA of approximately $255 million, more than 440,000 broadband subscribers, and net debt of $533 million.

When is the merger between Liberty Latin America and Millicom's Costa Rica operations expected to close?

The transaction is expected to be completed during the second half of 2025, subject to customary closing conditions, including regulatory authorizations.

What are the main objectives of the TIGO and Liberty merger in Costa Rica?

The main objectives are to create a scaled platform, accelerate investments in fiber network expansion, increase fiber competition, promote high-quality services, and improve access to the digital economy for Costa Ricans.