Telefonica and Liberty Global announce plans to merge UK operations

Tech Blog
May 7, 2020
Merger

Today Telefonica and Liberty Global have announced their plans to merge their UK operations with the intention of becoming the leading fixed-mobile provider in the country.

This means O2, the country's largest mobile platform, and Virgin Media, the U.K.'s fastest broadband network is to be brought together in a joint venture in a transaction expected to take place mid-2021.

Key highlight that will benefit the users of these services include:

The combination creates a stronger fixed and mobile competitor  in the U.K. market, supporting the expansion of Virgin Media's giga-ready network and O2's 5G mobile deployment for the benefit of consumers, businesses and the public sector.

Fully converged platform will put customers first  and have the scale to innovate in the changing digital landscape, investing £10 billion in the U.K. over the next five years

Additional highlights of the news include:

Joint venture expected to deliver substantial synergies valued at £6.2 billion**on a net present value basis after integration costs, and equivalent to cost, capex and revenue benefits of £540 million1 on an annual basis by the fifth full year post-closing

Attractive valuation for both businesses, with O2 valued at £12.7 billion and Virgin Media valued at £18.7 billion, both on a total enterprise value basis. O2 to be transferred into the joint venture on a debt-free basis, while Virgin Media to be contributed with £11.3 billion of net debt and debt-like items

Both parties expect to receive net cash proceeds at closing following a series of recapitalizations that will generate £5.7 billion in proceeds for Telefonica and £1.4 billion for Liberty Global (after an equalization payment to Telefonica of £2.5 billon3)

Joint venture will target ongoing net leverage of 4.0-5.0x, with proceeds from any future free cash flow generation and financing to be distributed equally between Telefonica and Liberty Global

The transaction is expected to close around the middle of 2021 and is subject to regulatory approvals, consummation of the recapitalizations, and other customary closing conditions

This strategic combination of O2 and Virgin Media will create a nationwide integrated communications provider with over 46 million video, broadband and mobile subscribers and £11 billion of revenue.

Strategic combination

Telefonica Chief Executive Officer, Jose Maria Alvarez-Pallete has said this will be a game-changer in the U.K., at a time when demand for connectivity has never been greater or more critical. Opening up opportunities for offering more choice to businesses and public sectors.

Mike Fries, Chief Executive Officer of Liberty Global, has said 'We've seen the benefit of FMC first-hand in Belgium and the Netherlands. When the power of 5G meets 1 gig broadband, U.K. consumers and businesses will never look back.'

Our comments

Our Managing Director Martin Lauer says 'I'm very excited about the opportunities that this opens up for Business and the powerful combination of the two most loved brands and infrastructure will be unrivalled in the UK.'

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