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By Arno Schuetze and Harro Ten Wolde
FRANKFURT, Dec 5 (Reuters) - Pressure from competitionregulators could prompt Liberty Global to abandonGermany if it can no longer pursue its growth ambitions inEurope's biggest cable market, sources have told Reuters.
The company owns Unitymedia KabelBW, Germany's No.2 cableoperator - formed when Liberty bought KabelBW for 3.3 billioneuros ($4.1 billion) three years ago and merged it with itssubsidiary Unitymedia.
But last year a regional court reversed a 2011 antitrustapproval of the KabelBW acquisition and ruled that regulatorsmust re-examine the deal. Unitymedia filed a complaint againstthe ruling, taking the case to Germany's Federal Court ofJustice. A decision is still pending and could take months.
If the federal court upholds the ruling, Unitymedia KabelBWcould be forced to make concessions to protect competition or -at worst - to unwind the merger.
The case has provided further evidence to Liberty - Europe'sbiggest cable group - that it will not be allowed to expandthrough acquisitions in Germany, and it is now open to sellingUnitymedia KabelBW, according to two people familiar with thecompany's thinking.
"If the offer is good enough, they would consider it," saidone of the sources.
The ruling came only weeks after Liberty backed out of abidding war with Vodafone for Germany's largest cableoperator Kabel Deutschland after learning that the Germancompetition watchdog would foil such a deal.
"That is when Liberty Global decided Germany no longer was agrowth market," the second source said.
Liberty's Chief Financial Officer Charles Bracken toldReuters he expected the obstacles in the country to be overcome."In Germany we are facing a shakedown from the regulators. Butthe KabelBW transaction will not be unwound. We are working tonegotiate a solution with regulators."
Asked whether the firm wants to quit the country, Brackensaid: "We love Germany."
A Liberty spokesman declined to comment further.
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Exiting Europe's biggest cable market would be a seriousblow for Liberty as Unitymedia KabelBW generated almost a fifthof total revenues of $14.5 billion last year and almost aquarter of total operating cash flow of $6.74 billion.
The court case against the merger was brought by DeutscheTelekom, which has been hard hit by the success ofUnitymedia KabelBW and Kabel Deutschland.
Both cable companies have snatched customers fromestablished telecoms players such as Deutsche Telekom, withtheir upgraded networks offering home and office Internet atspeeds that are often five times faster.
The first source said that if Liberty lost the legal battle,one of the options open to Germany's competition watchdog - theFederal Cartel Office - would be to force the company to divesta third of its German assets.
If that happened, Liberty "may as well pull the plug", thesource said.
A third person familiar with Liberty's thinking said that,regardless of the outcome of the case, technology andmedia-focused private equity investors would be keen to snap upUnitymedia KabelBW if it was put up for sale.
"They (Liberty management) are considering variousscenarios, but are pretty relaxed about it," the source said.
Liberty Global is backed by U.S. tycoon John Malone, whoalso controls Liberty Media Corp and DiscoveryCommunications. It has been a serial buyer of cablecompanies in Europe for the past decade and turned to buying TVassets in recent months.
Earlier this year it bought British production groupAll3Media and a 6.4 percent of British broadcaster ITV.
(1 US dollar = 0.8097 euro) (Additional reporting by Peter Maushagen in Frankfurt and LeilaAbboud in Paris; Editing by Pravin Char)
