Liberty Global and Telefonica to merge their UK operations in a €35.2B merger

-By Chen Xiangyu (Owen), University College London


Acquirer: Liberty Global
Target: Telefonica
Estimated value: €35.2 Billion
Announcement date: 7 May 2020
Acquirer Advisor: JPMorgan Chase
Target Advisor: Citigroup

Liberty Global Plc and Telefonica S.A. will establish a 50:50 joint venture in which Liberty
Global will provide its €21 billion UK-based subsidiaries Virgin Media and Telefonica will
provide its €14.2 billion UK-based subsidiary O2. To begin with, the JV will give Virgin Media
and O2 a greater fixed and opponent in the United Kingdom, allowing Virgin Media to
develop connections and O2 to grow its 5G mobile infrastructure. The JV will produce a
countrywide effective distribution operator of more than 46 million television, internet, and
phone users and €12.3 billion in sales, as well as considerable economic advantages of
annual operating expenditure, CapEx, and income savings of €605 million. The merging of
Virgin Media’s v6 video platform and internet connection with O2’s 5G mobile offerings
would provide exceptional connection and recreation to the consumers.

“Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK, 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”

-Jose Maria Alvarez-Pallete, CEO of Telefonica


Acquiring Company: Liberty Global
Liberty Global, established in London and listed on the New York Stock Exchange, is one of
the world’s top convergent video, broadband, and communication companies, with
operations in six European countries under the Virgin Media, Telenet, and UPC consumer

Credits: Liberty Global

Headquarters: London, UK
Number of employees: 23,000
Market Cap: $15.38 bn
EV: $29.823.32 bn
LTM Revenue: $11.542 bn
LTM EBITDA: $4.641 bn
LTM EV/Revenue: 2.58x

Target Company: Telefonica
Telefonica, a publicly traded Spanish firm with headquarters in Madrid, is one of the world’s
largest telecommunications companies. The company specializes in mobile and fixed-line
telephone services, as well as fixed and mobile connectivity and a comprehensive range of
digital services for household and commercial users. Telefonica is a Spanish
telecommunications company that operates in Europe and Latin America.

Credits: Telefonica

Headquarters: Madrid, Spin
CEO: Jose Maria Alvarez-Pallete
Number of employees: 120,138
Market Cap: €23.14 bn
EV: €73.391.78 bn
LTM Revenue: €47.810 bn
LTM EBITDA: €16.006 bn
LTM EV/Revenue: 1.54x


The integration of the broadband network with O2’s 5G functionality and Virgin Media’s v6
video service will result in a significant product service with goods that will provide
enhanced accessibility and an excellent entertainment system for accessibility in the United
Kingdom. Telefonica’s stock soared by 4.4 percent when the deal was announced, although
dipped backwards to 1.12 percent later. Liberty Global will use €2.5 billion to stabilise the
JV, which represents Virgin Media’s €11.3 billion debt Telefonica will get €5.7 billion cash as
part of the agreement to reduce the debt of the company. Investors continue to believe that
the combination of O2’s mobile service with Virgin’s fixed broadband network will be
comparable, resulting in increases in the market.

Other industry competitors may be put under more stress from the merger, which could lead to more mergers. The resulting combined subscriber base of 46 million will give it the greatest in volume, however, it will trail BT Group of yearly income. By combining O2 and Virgin’s respective strengths, the two businesses will be able to compete with BT. Network facilities and IT services from national and regional levels are combined. Location optimisation, as well as a decrease in combined advertising costs and the possibility to cut administrative expenses.


There has been suspicion about the merger. Before Liberty and Vodafone came close to
forming a partnership. Researchers speculated the Liberty and Telefonica conversations
could be a deliberate move to strengthen the agreement of Vodafone. Following the
blockade of Telefonica’s effort to sell O2 to CK Hutchison Holdings Ltd by British and
European regulators in 2016, alike attempt may appear to pose a risk to such a deal. The
efforts created a prior example in Europe against telecom industry

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