Telefonica and Liberty Global in talks over UK telecomms merger

O2 / Virgin Media combination would be serious competition for BT and Sky

New venture would capture an estimated 34 per cent of Britain's telecom service revenues
New venture would capture an estimated 34 per cent of Britain's telecom service revenues
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Spanish telecommunications firm Telefonica said on Monday that it was in talks with Vergin Media owner Liberty Global over a potential merger of their telecom businesses in the UK.

In a stock market filing, Telefonica confirmed that it was discussing integration of Telefonica's O2 with Liberty Global's Virgin Media although there was no guarantee that an agreement would be reached.

"The process started between both parties is in the negotiation phase, with no guarantee, at this point, of precise terms or its probability of success," Telefonica stated.

The company promised to keep markets informed if a "satisfactory agreement" were reached.

A source familiar with the matter told Reuters that the discussions are currently focused on creating a joint venture that is equally owned by the two firms. Liberty Global will likely make a payment to Telefonica to ensure they have 50-50 partnership.

Merging O2 and Virgin Media would reshape UK's telecoms industry, according to industry experts, enabling the new entity to take on the likes of BT and Sky.

It would bring together O2's 34 million mobile users with Virgin's 5.3 million broadband, mobile and pay-TV subscribers and could create a business with an estimated value of about $30 billion.

The new venture would capture nearly 34 per cent of Britain's telecom service revenues, Goldman Sachs estimates. If successful, it would be BT's only competitor offering mobile and fixed-line services to customers.

The deal could also help Telefonica to reduce its net debt, which amounted to 38 billion euros at the end of 2019. The Spanish telecoms giant has been exploring options for its mobile business since 2016 when European antitrust regulators blocked a £10.3 billion O2 acquisition bid from Three UK.

The company later planned to launch a £10 billion IPO but that plan was abandoned due to Brexit concerns and the subsequent market unrest.

Liberty Global has also been looking to divest some of its European operations of late. Last year, it sold its cable networks in Germany and central Europe to Vodafone in a £18.4 billion deal.

Earlier in 2016, it merged its Dutch business with Vodafone in a deal that could provide the blueprint for a merger of Virgin Media with O2.

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