M&A Mobile Telecom

Liberty Global and Telefonica Announce Merger Of Their U.K. Operations To Create the Leading Fixed-Mobile Provider in the Country

Virgin Media, U.K.’s fastest broadband network, and O2, the country’s largest mobile platform, have announced a 50-50 joint venture to create a stronger fixed and mobile competitor in the U.K. market. 

The merger will support the expansion of Virgin Media’s giga-ready network and O2’s 5G mobile deployment with an investment of £10 billion in the U.K over the next five years

O2 is valued at £12.7 billion and Virgin Media valued at £18.7 billion, both on a total enterprise value basis. The transaction is expected to close around the middle of 2021. The transaction is not subject to Telefonica or Liberty Global shareholder approvals only regulatory approval.

Telefónica is a 100% listed company and one the largest telecommunications service providers in the world. The company offers fixed and mobile services as well as a wide range of digital services for its 344 million residential and business customers based in Europe and Latin America.

Liberty Global is one of the world’s leading converged video, broadband and communications companies, with operations in six European countries under the consumer brands Virgin Media, Telenet and UPC with around 17 million customers. It also owns 50% of VodafoneZiggo a company based in the Netherlands.

The adoption of converged fixed-mobile services to existing business customers offers new services using both companies’ digital skills, networks and product portfolios, such as cloud, big data, Internet of Things and cybersecurity services. This will ensure sustainable competition in all business segments across the U.K., which will benefit the overall British economy.

Neither Telefonica nor Liberty Global will consolidate the transaction. It will include a series of recapitalization financings prior to closing to reach its target of approximately £18 billion of long-term debt. Net new proceeds are targeted to be approximately £6 billion. After a series of recapitalizations, Telefonica is expected to receive £5.7 billion. Liberty Global is expected to receive £1.4 billion in net cash proceeds. The transaction will not trigger a change of control under Virgin Media’s existing third-party debt that will be contributed in full to the joint venture. As part of the transaction, a syndicate of banks has underwritten a £4 billion standalone undrawn financing on the O2 business.

The joint venture is expected to realize significant growth resulting in revenue synergies with an estimated annual run-rate of approximately £110 million. Telefonica Chief Executive Officer, Jose Maria Alvarez-Pallete, said, “Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the U.K., at a time when demand for connectivity has never been greater or more critical. We are creating a strong competitor with significant scale and financial strength to invest in UK digital infrastructure and give millions of consumer, business and public sector customers more choice and value. This is a proud and exciting moment for our organizations, as we create a leading integrated communications provider in the U.K.”

Mike Fries, Chief Executive Officer of Liberty Global, said, “We couldn’t be more excited about this combination. Virgin Media has redefined broadband and entertainment in the U.K. with lightning fast speeds and the most innovative video platform. And O2 is widely recognized as the most reliable and admired mobile operator in the U.K., always putting the customer first. With Virgin Media and O2 together, the future of convergence is here today. 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. We’re committed to this market and are right behind the Government’s digital and connectivity goals.”

 

 

 

 

 

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