Vodacom parent Vodafone has agreed to buy German and Eastern European units from Liberty Global in an €18.4bn (R277bn) deal that shakes up the region’s TV and broadband market and signals a retreat by US billionaire John Malone.
Vodafone will buy Liberty Global’s Unitymedia, the second largest cable network in Germany, as well as the Czech Republic, Hungary and Romania divisions of the central and eastern European brand UPC, the companies said on Wednesday.
The transaction expands Vodafone’s cable footprint in a challenge to Germany’s incumbent, Deutsche Telekom, providing more scale to bundle Internet, phone and TV services, and follows years of on-and-off talks between Vodafone and Liberty Global. While the two agreed to a joint venture in the Netherlands in 2016, discussions about more transformative mergers or asset swaps had stalled on disagreements over valuations and debt.
“This transaction will create the first truly converged pan-European champion of competition,” Vodafone CEO Vittorio Colao said in a statement.
Vodafone rose as much as 2.4%, trading at 211p as of 8.17am in London. Liberty Global, listed in New York, fell 5.4% on Tuesday.
The companies both seek to be top carriers in each of the markets where they operate, but Liberty Global had been struggling to find a way to gain clout with mobile services in Germany. The agreement focuses Liberty Global more on the UK and Ireland, its largest market, and follows the sale of its Austrian cable division to Deutsche Telekom late last year.
Vodafone will pay Liberty Global €10.8bn in cash and assume €7.6bn of debt, Vodafone said. Opportunities to sell Liberty Global’s broadband, phone and TV services to Vodafone’s existing customers will allow for revenue synergies valued by Vodafone at €1.5bn.
The proposed deal marks a major consolidation for European carriers, which remain significantly more fragmented than their US peers. It will face scrutiny from regulators, either in Germany or at the European Union, the latter having blocked the merger of CK Hutchison Holdings’ Three and Telefonica’s O2 in the UK in 2016.
Harmful
Tim Hoettges, Deutsche Telekom’s CEO, in February called for such a deal to be blocked, saying the convergence of TV and cable services at such a scale could be harmful for democracy in the country. Colao suggested his counterpart’s remarks stemmed from concern about increased competition.
The deal is “exactly exactly what German market needs, which is a stronger, more consolidated competitor to Deutsche Telekom in a market that has really lagged in innovation and investment”, Mike Fries, Liberty Global’s CEO, said in an interview. “So I think this will get approved and I think it’s definitely in the best interests of consumers and we’ll make that argument.”
Wednesday’s tie-up, scheduled to closed around mid-2019, may not mark the end of Liberty and Vodafone’s discussions. Executives on both sides have publicly mused about the potential for a merger of the companies, to create a European challenger with the mobile and fixed assets to better take on incumbents.
Vodafone’s chief financial officer, Nick Read, recently hinted the operator is interested in buying out Liberty’s stake in the companies’ 50/50 Dutch joint venture, and Colao has said that UK operations could be included in future talks. On Wednesday, Colao told reporters a deal in the UK is not on the agenda and that Vodafone is very happy with how the Netherlands arrangement is working, while Fries said no other deals are currently being contemplated. — Reported by Thomas Seal and Joe Mayes, (c) 2018 Bloomberg LP
