Liberty Global in talks to merge Virgin Media with O2

[Pierre]

Originally Posted by 1andrew1

Yes, it will be interesting but probably concerning for some employees in those two companies.
The number of players in the market is not normally considered, but how you define a) the market and b) market share is key.

Well I am an employee of one of those companies, and I wouldn’t be concerned. But I am not in the mobile division.

My other point was you have BT/EE, Vodafone, Three and O2

They are the 4no. MNO’s in the UK. When Three want to buy O2, that was blocked because that would have reduced the number of MNO’s to three.

Virgin, along with Tesco and a load of other MVNO’s are just essentially wholesale customers of whatever MNO they are contracted to.

So if Virgin move their business to O2 instead of Vodafone from EE, so what?

[1andrew1]

Originally Posted by Pierre

Well I am an employee of one of those companies, and I wouldn’t be concerned. But I am not in the mobile division.

My other point was you have BT/EE, Vodafone, Three and O2

They are the 4no. MNO’s in the UK. When Three want to buy O2, that was blocked because that would have reduced the number of MNO’s to three.

Virgin, along with Tesco and a load of other MVNO’s are just essentially wholesale customers of whatever MNO they are contracted to.

So if Virgin move their business to O2 instead of Vodafone from EE, so what?

Per the Statista market share chart earlier, the market share of a combined O2 UK and VM would exceed 29% which is usually an issue in the UK.

The acquisition of O2 by Three was blocked by the European Commission who are unlikely to get involved now, per the FT article Den linked to.

---------- Post added at 22:44 ---------- Previous post was at 22:43 ----------

Originally Posted by Pierre

Some further analysis
https://www.graystonestrategy.com/vi...iew-on-things/

Interesting, thanks for posting.

[Kushan]

https://www.ispreview.co.uk/index.ph...gin-media.html

O2 have officially admitted that talks are happening.

[Brunel]

And the report from "The Beeb" https://www.bbc.co.uk/news/business-52527804

[Pierre]

Originally Posted by Kushan

https://www.ispreview.co.uk/index.ph...gin-media.html

O2 have officially admitted that talks are happening.

I can unofficially also confirm, as I am being asked questions, the same questions that are always asked whenever we are about to either be bought or merged.

[Horizon]

The Telegraph reported over the weekend that they reckon this is another Malone tax avoidance scheme. He's the master of it...

John Malone, Liberty’s libertarian controlling shareholder, who has described taxation as “a leakage of economic value”, will be attracted to the deal partly as a tax avoidance opportunity. O2’s profits will presumably be funnelled through Virgin Media’s accumulated losses, which date from the cable rollout of the 1990s, as part of the merger. O2’s accounts show it pays more than £100m a year in corporation tax, which may now count towards synergies instead.

https://www.telegraph.co.uk/business...ger-meets-eye/

https://www.telegraph.co.uk/business...-media-merger/

[Inactive Digital]

Sky News have published an analysis. It also suggests that part of the MVNO agreement with Vodafone includes VF being able to access Virgin's network to provide broadband service. Is that back haul or the much-rumoured wholesale access Liberty Global are looking at?

The bigger question, however, is how Vodafone will respond.

It has just signed a deal under which Virgin Mobile would be able to use its network for five years from 2021, while it would be able to sell broadband services in the UK accessing Virgin Media's cable network.

https://news.sky.com/story/why-o2-an...ction-11983086

[1andrew1]

I'm wondering if O2's stake in Tesco Mobile might be sold to Vodafone in the event of the VM-O2 merger happening. This could have two benefits:
a) Placates the competition authorities whilst allowing O2-VM to retain the O2, Virgin Mobile and Giff-Gaff businesses.
b) Compensates Vodafone if the MVNO with Virgin Mobile no longer takes place.

[1andrew1]

Originally Posted by newapollo

I wonder if this will have any effect on the proposed switch to Vodafone for mobile due late next year

Originally Posted by 1andrew1

We also don't know 100% if VM Ireland is included in the VM-O2 merger as that is a market O2 has withdrawn from.

OK, we now have some answers.
1) VM's mobile customers will move to the O2 network
2) VM Ireland is not part of the deal.

Details announced today at https://2zn23x1nwzzj494slw48aylw-wpe...Operations.pdf

Extracts from press release:

• 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 billon)
• Joint venture will target ongoing net leverage of 4.0-5.0x, with proceeds from any future freecash 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
•The JV intends to distribute available cash to the shareholders periodically and is expected to undertake periodic further recapitalizations, subject to market and operating conditions, to maintain
its 4.0x-5.0x target net leverage ratio
•Telefonica is hosting a conference call on Thursday, May 7, 2020 for analysts and investors, which will start promptly at 10.00 a.m. (London time)
•The transaction is subject to regulatory approval. Liberty Global and Telefonica have already undertaken preparatory work on the required competition filing and will formally request approval from the appropriate authority in due course.

BBC news item now at: https://www.bbc.co.uk/news/business-52570593

[Horizon]

Originally Posted by 1andrew1

Interesting. I wonder if this might flush some counter-offers out? Vodafone might be tempted by VM now that an external value has been placed on VM. And Comcast may be tempted to buy O2.
However, if the combination of O2 and VM does take place, VM-O2 will be the mobile carrier for Sky potentially raising the chances of Sky Atlantic appearing on the V6.

I don't think Vodafone will spoil the party and attempt to merge with VM itself for a few reasons. Firstly, they've been dancing around each other for years and nothing happened and secondly, Vodafone's boss made it clear that he didn't want to be part of Malone's tax "planning" scheme and get loaded up with debt. So, I think this VM/O2 merger will go ahead

But, that does leave Vodafone out in the cold now with two very powerful multiplatform competitors, so I would not be surprised if Vodafone bought TalkTalk with its 4 million plus broadband customers and possibly CityFibre too. Vodafone and CiryFibre have been working together on various FTTP projects around the country, so it could be a good combination. Last, but not least there is 3, which is very much in a distant fourth place here and I expect something to happen to them too at some point.

And, as you say, where does this leave Comcast? A cable co without a cable network or mobile outfit. I think more mergers are likely now.

I don't think we'll see any moves by Comcast yet, as it's busy dealing the collapse of its film/tv business', but in the future, I expect them to make some sort of move.

[1andrew1]

Originally Posted by Horizon

I don't think Vodafone will spoil the party and attempt to merge with VM itself for a few reasons. Firstly, they've been dancing around each other for years and nothing happened and secondly, Vodafone's boss made it clear that he didn't want to be part of Malone's tax "planning" scheme and get loaded up with debt. So, I think this VM/O2 merger will go ahead

But, that does leave Vodafone out in the cold now with two very powerful multiplatform competitors, so I would not be surprised if Vodafone bought TalkTalk with its 4 million plus broadband customers and possibly CityFibre too. Vodafone and CiryFibre have been working together on various FTTP projects around the country, so it could be a good combination. Last, but not least there is 3, which is very much in a distant fourth place here and I expect something to happen to them too at some point.

And, as you say, where does this leave Comcast? A cable co without a cable network or mobile outfit. I think more mergers are likely now.

I don't think we'll see any moves by Comcast yet, as it's busy dealing the collapse of its film/tv business', but in the future, I expect them to make some sort of move.

Some interesting points there, Horizon. I think one piece of good news for O2-VM's competitors is that its shareholders want to continue milking it as a cash cow and will continue to load it with debt and take out dividends. Thus, it's not in danger of being a big threat to Sky or BT.

Three and TalkTalk both focus on the value end of the market so would make more of a a logical combination from a customer perspective. However, as you say, if Vodafone did not acquire TalkTalk its broadband options are limited to acquiring the far smaller challenger businesses like Community Fibre and City Fibre.

On reflection, Comcast despite its cable roots can probably thrive in the medium term without owning a cable network in Europe. It is currently quite easy for it to resell other providers' broadband capacity and it is strong on content. Three might be a good fit on the mobile front and mobile broadband is improving with 5G.

The deal also hoists a for sale sign over VM Ireland. In the Republic of Ireland the broadband market shares are: Eir 31%, Virgin Media 26%, Vodafone 19%, and Sky 13%. Per https://www.comreg.ie/publication/qu...report-q3-2019
Without Telefonica in that marketplace, there's no obvious trade buyer. Maybe BT at a push.

[Horizon]

Originally Posted by 1andrew1

Three and TalkTalk both focus on the value end of the market so would make more of a a logical combination from a customer perspective. However, as you say, if Vodafone did not acquire TalkTalk its broadband options are limited to acquiring the far smaller challenger businesses like Community Fibre and City Fibre.

Now that there can be no European rules blocking mergers. Vodafone and 3 might tie up, but whether our own regualtors want just three mobile phone cos, is another matter entirely.

Originally Posted by 1andrew1

On reflection, Comcast despite its cable roots can probably thrive in the medium term without owning a cable network in Europe. It is currently quite easy for it to resell other providers' broadband capacity and it is strong on content.

I think you're probably right on these points.

Sky has 10m+ satellite customers, which, even if it had a cable network, it would take some time and effort to transition all those customers over to it and besides, with Now TV and Peacock being able to be streamed over any broadband line, there is a good argument to be had for not needing a network anyway. Netflix and Disney seem to do okay.

[Pierre]

Originally Posted by Horizon

so I would not be surprised if Vodafone bought TalkTalk with its 4 million plus broadband customers and possibly CityFibre too. Vodafone and CiryFibre have been working together on various FTTP projects around the country.

I think this is the most likely scenario. CityFibre recently bought the Talk talk FTTP subsidiary Fibre Nation, and although City Fibre is building apace it has avery small Access Network footprint, so Vodafone would need Talk Talk as well to give them a decent fixed line consumer base.

---------- Post added at 10:52 ---------- Previous post was at 10:50 ----------

Originally Posted by 1andrew1

The deal also hoists a for sale sign over VM Ireland. In the Republic of Ireland the broadband market shares are: Eir 31%, Virgin Media 26%, Vodafone 19%, and Sky 13%. Per https://www.comreg.ie/publication/qu...report-q3-2019
Without Telefonica in that marketplace, there's no obvious trade buyer. Maybe BT at a push.

There's nothing stopping LG and Vodafone doing a JV with VMIE and Vodafone in Ireland as they have with Ziggo in the NL.

[1andrew1]

Originally Posted by Pierre

There's nothing stopping LG and Vodafone doing a JV with VMIE and Vodafone in Ireland as they have with Ziggo in the NL.

Whilst I wouldn't necessarily rule that out, it would give a combined broadband share on paper of 45% which could trigger competition concerns.

[Kushan]

Originally Posted by Horizon

Now that there can be no European rules blocking mergers. Vodafone and 3 might tie up, but whether our own regualtors want just three mobile phone cos, is another matter entirely.

I'm normally all for competition in the marketplace but with the physical limitations of mobile spectrum, there is definitely a case for keeping that competition to a fixed limit. More than 2 for sure, but probably less than 5. 3 or 4 is trickier to determine. Right now we don't seem to have serious capacity issues thanks to the 5G rollout, but in future that might change.

Three have loaded up big on the 5G spectrum, I suspect they've put the big bet on Fixed wireless internet for their future.

If that pays off, I doubt they care much for Vodafone, but if it doesn't then I suspect Three will be gobbled up by someone eventually. I'd say TalkTalk is a good shout but I'm not sure how much life TalkTalk has left in it. Three and Sky/Comcast, maybe?