The owners of Virgin Media and O2 have confirmed a £31bn mergerdeal to create a new “national champion" to challenge BT and Sky in the UK


Liberty Global, which owns the UK's largestcable company Virgin, and Telefónica, which owns Britain's biggest mobileoperator O2, are to merge their UK operations in a new 50-50 joint venture.

Liberty Globalis also ITV's biggest shareholder, with a 10% stake, and owns half ofAll3Media, the production group that makes shows including Liar, Fleabag andHollyoaks.

The newcompany, which will challenge BT and Sky by offering consumers competitivebundles of TV, mobile and broadband packages, will have 46 million customersand £11bn in revenue.

Mike Fries, the chief executive of Liberty Global, said it hadbeen only “a matter of time" until there was more convergence in the highlycompetitive UK media and telecoms market.

“BT and EEtogether are a powerful combination in our minds," he said, referring to BT's £12.5bn deal to buy the mobile company in 2016.“Our rationale was that it was just a matter of time, convergence has beenslower in this market. With Virgin Media and O2 together, the future ofconvergence is here today."

The new companywill invest £10bn in areas including gigabit-speed broadband and 5G networks.

“The UK is one of the most attractive markets on Earth," saidJosé María Alvarez-Pallete, the chief executive of Telefónica. “Evenconsidering Brexit, we have been investing heavily in the UK. It is the righttime to commit to the future of the UK by building this value proposition."

Under the deal,which is expected to complete in the middle of next year, there is an option toperhaps float the venture on the UK stock market in three years.

“We are bothcoming to the joint venture with the expectation we will remain partners,"Alvarez-Pallete said. “We don't come into this with the expectation that wewill turn right or left at a certain point of time. If a listing were to come downthe road, it can provide a transparency of value and give people the chance toown part of a national champion."

Philip Jansen,the chief executive of BT, said the emergence of a new power player in the UKmarket would not make BT speed up its own investment plans.

“We are not going to go any faster," he said. “We have acomprehensive five-year plan. This deal is not a surprise, I think the industryneeds consolidation. It follows our strategy four years ago [buying EE].Competition is good, it drives innovation."

The new jointventure will be overseen by an eight-strong board of directors, four each fromLiberty Global and Telefónica, with the chairman rotating every two yearsbetween the two companies. Liberty Global's Fries will be the first chairman.

The deal willinclude recapitalisations under which Telefonica will receive £5.7bn inproceeds and Liberty Global £1.4bn. The new venture will be laden with £18bn inlong-term debt.

Vodafone, whichhas previously held talks with Liberty Global about a similar UK tie-up, couldyet look to make a counter offer.


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