John Malone’s Liberty Global has agreed to merge its U.K. cable operator Virgin Media with Telefonica’s British mobile unit O2.
The two companies have agreed to form a 50-50 joint venture of their U.K. units in a deal reportedly worth $29.57 billion. The tie-up, which comes as the U.K. gears up for a national rollout of 5G services, is expected to save the new combined entity $7.64 billion in synergy costs and is expected to close in the middle of 2021.
Virgin Media, which Liberty Global acquired in a $16 billion deal in 2013, has focused on offering multiple products, including pay TV, broadband and phone services. It also sells mobile services in a partnership with BT Group that expires late next year and will then switch to Vodafone. The company claims to be the U.K.’s fastest broadband network.
O2 ended 2019 with 34.5 million mobile subscribers, making it the U.K’s largest mobile operator.
In a statement, Telefonica CEO, Jose Maria Alvarez-Pallete, said, “Combining O2’s number one mobile business with Virgin Media’s super-fast 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 U.K. digital infrastructure and give millions of consumer, business and public sector customers more choice and value.”
Mike Fries, CEO 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.”
European antitrust regulators a few years ago blocked Telefonica’s plan to sell O2 to the owner of mobile rival Three in a $15 billion deal.
Enders Analysis analyst James Barford in a recent report said about the Virgin Media-O2 merger: “This is not likely to be driven by the pursuit of revenue synergies as dis-synergies are more likely if the brands are merged.”
Addressing reports of targeted synergies of around £500 million, or $620 million, annually, he wrote: “While fairly modest in the context of the companies’ size, this still looks right at the top end of reasonableness, and perhaps includes cost savings, which could have been achieved through cost-efficiency programs individually without the need for a merger. Nonetheless, a deal of the style reported is probably worth pursuing even for a portion of the synergies touted given the challenging fundamentals of the sector — in a very mature market, even tangential synergies are worth pursuing.”
