May.07 -- Telefonica SA and Liberty Global Plc. have agreed to create the U.K.’s largest phone and internet operator. The deal values the new company, combining Virgin Media and O2 at $31 billion pounds. The joint venture is set to pose a challenge to the dominance of BT in converged services. Bloomberg Intelligence’s Matthew Bloxham discusses the merger on “Bloomberg Markets: European Open.”
The regulators said "NO" when Telefonica tried to combine its O2 operations in the UK with rival carrier, Hutchison-owned Three, back in 2015. Telefonica and Liberty Global today announced a plan to merge the Spanish telco's UK mobile carrier O2 with Virgin Media, a pay-TV and broadband provider in the country owned by Liberty.
(Bloomberg) -- Telefonica SA and Liberty Global Plc have agreed to create the U.K.’s largest phone and internet operator, threatening their rivals and marking another industry-defining deal for billionaire John Malone.The deal values the combination of Telefonica’s O2 with Liberty’s Virgin Media at 31.4 billion pounds ($39 billion). The companies said in a statement Thursday they plan a joint venture with equal stakes that will account for Virgin’s higher value -- and debt load -- with a payment to O2.The transaction, first reported by Bloomberg, is a chance for both parent companies to rework two mid-tier rivals into a fully-fledged competitor to BT Group Plc in so called converged services, which combine fixed and wireless phone, broadband and television. It is also one of the largest deals since Covid-19 was declared a pandemic in early March.Telefonica’s shares rose as much as 4.4% as the announcement overshadowed mixed earnings before swinging to a loss, while BT revealed that it is canceling its dividend payments until 2021, causing shares to fall over 11%. Liberty was up as much as 12% after reporting steady sales late Wednesday before pulling back.The transaction values O2 at 12.7 billion pounds and Virgin at about 18.7 billion pounds. The Spanish parent has been weighed down by about 38 billion euros ($41 billion) of borrowing. The arrival of new funds, including a 2.5 billion-pound equalization payment, could give its deleveraging efforts a boost, Bloomberg Intelligence analyst Erhan Gurses said in a note.Each company will name half of the 8-member board, which will have a chairman who will rotate every two years. The deal is set to be completed in mid-2021.The announcement is the latest deal for John Malone, Liberty’s billionaire chairman, who has been on a relentless M&A spree since selling cable provider Tele-Communications Inc. to AT&T Inc. for $48 billion in 1999. His track record took a knock late last year when his effort to sell UPC Switzerland for $6.4 billion fell apart.For Telefonica Chairman Jose Maria Alvarez-Pallete, it’s also an opportunity to signal to investors he’s committed to restructuring the debt-laden company.Investors have punished Telefonica stock since Pallete became chairman four years ago, as the Madrid-based company failed to deliver clear prospects for growth and cutting debt. The shares are down by about 31% so far this year, even after he introduced in November a strategy to focus on Spain, Brazil, the U.K. and Germany, which generate the bulk of sales, and place other Latin America activities into a separate division.Key TermsO2 will be debt-free, while Virgin Media comes with 11.3 billion pounds of net debtAny cash flow generation and financing needs will be divided equally between Telefonica and Liberty GlobalThe new unit will service over 46 million video, broadband and mobile subscribersBanks have underwritten 4 billion pounds for financing for O2 businessThe companies have yet to announce who will lead the new unit, with the board equally split, and the chairman to rotate every two years, first going to Liberty Global CEO Mike Fries.Both sides will have the right to kick off an IPO three years after the deal closesBy joining with Liberty in the U.K., Telefonica puts Vodafone Group Plc in a difficult position. It deprives it of a potential partner which could have set it on the road to offering consumers fixed-line services wrapped into lucrative bundles at a national scale. And Virgin will no longer need to pay it for mobile wholesale access. That’s something Liberty would have needed to keep doing to capture potential new revenue streams from the next generation of wireless technology, such as the proliferation of smart devices. Analysts have not ruled out a fightback from the Newbury, England-based carrier.While a potential IPO could provide “transparency” on the value of the new venture, the two companies aren’t “entering the deal with the idea of leaving,” Fries said in a conference call Thursday. He added the transaction is a huge vote of confidence in the U.K., in spite of the uncertainties surrounding Brexit, which will “occur, and everyone will manage their way through it.”Liberty was advised by JPMorgan Chase & Co. and LionTree Advisors LLC while Telefonica worked with Citigroup Inc.The tie-up comes at a crucial moment for Virgin. Rival BT is the only U.K. operator to own both a mobile and fixed network, and it’s been investing to upgrade to fiber optic broadband. This threatens one of Virgin’s key selling points -- the speed of its internet services. It also gets a partner with significant experience in convergence and building and operating fiber networks.The merger means O2 can grow beyond the mobile-only market in which it currently operates.Speaking in an earnings call Thursday, BT CEO Philip Jansen said the deal wasn’t a surprise. “Personally I think the industry needs consolidation,” he said.Telefonica was one of the first European carriers to make the shift to convergence: offering fixed- and mobile-phone services, along with broadband and television. The company is also Europe’s leading operator of fiber-optic broadband, a crucial type of infrastructure which the U.K. is still struggling to roll out.But it hasn’t always been able to take a leading market position with this know-how. In 2018 it was left as a mobile-only carrier in Germany, reliant on buying wholesale access from rivals in order to offer fixed and broadband services, after Liberty sold its cable business there to Vodafone.“We think this deal will trigger a ripple effect on the U.K. market,” said Kester Mann, analyst at CCS Insight. “Vodafone, Three, Sky and TalkTalk will all be assessing their positions and further deal-making can’t be ruled out.”(Updates with Liberty shares in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
I noted with interest that Liberty Global has struck a deal with a fund backed by the Church of England and the UK government to build a network of EV charging points in residential streets ( FT.com , ...
Liberty Global has struck a deal with a fund backed by the UK government and the Church of England to build a network of electric vehicle charging points in residential streets using the underground duct network of its Virgin Media business. The US cable company has created a joint venture called Liberty Charge alongside Zouk Capital, a London-based private equity firm which manages the government’s Charging Infrastructure Investment Fund (CIIF), to roll out thousands of on-street charging points for electric vehicles it told the Financial Times.
A tie-up is agreed that will create one of the UK's largest mobile, broadband and media firms.
(Bloomberg) -- Europe’s biggest M&A deal since the coronavirus pandemic is missing a notable protagonist: a European bank.Telefonica SA of Spain and Liberty Global Plc worked purely with U.S. financial advisers on the combination of their O2 and Virgin Media businesses, which will create the U.K.’s largest phone and internet operator valued at 31.4 billion pounds ($39 billion) including debt. Telefonica tapped Citigroup Inc., while billionaire John Malone’s Liberty used JPMorgan Chase & Co. and its go-to boutique bank LionTree Advisors LLC.The banking roster highlights Wall Street’s sustained dominance in the market for fees in Europe, where many of the region’s historically strong advisory banks have fallen behind their U.S. rivals after years of restructuring since the 2008 financial crisis.While Telefonica uses a range of advisers, it has regularly worked with European banks in the past. UBS Group AG advised on the attempted sale of its U.K. business to CK Hutchison Holdings Ltd. in 2015, a deal that was blocked by regulators. The Swiss lender was also one of the arrangers for its aborted initial public offering of O2 the following year, people with knowledge of the matter said at the time.Malone ConnectionsCitigroup vaulted 10 spots on the league tables as a result of the Telefonica-Liberty transaction. It now ranks no. 4 on deals targeting European companies this year, according to data compiled by Bloomberg.The firm’s global investment banking operations are co-led by Spaniard Manolo Falco and it has a historically strong presence in the country, where it was the busiest M&A adviser last year. Citigroup’s deep bench of technology, media and telecoms bankers also helped.Read more: Want a Top M&A Job in London? It Helps to Be Italian or SpanishLionTree, the boutique co-founded by former UBS analyst Aryeh Bourkoff, jumped to no. 13 from no. 29. JPMorgan Chase & Co. has solidified its no. 2 spot in the rankings, just behind Wall Street rival Goldman Sachs Group Inc., which didn’t have a role on the deal.JPMorgan may have benefited from its financing capabilities and its work with Malone last year on his planned $6.4 billion sale of UPC Switzerland to Sunrise Communications AG, which fell apart after shareholder opposition. European investment bank Credit Suisse Group AG missed out on this latest transaction despite also having a role on that Swiss deal as well as Liberty’s original purchase of Virgin Media in 2013.Some other banks may have also been conflicted out of the deal because they’re regular advisers to rival U.K. carriers like Vodafone Group Plc and BT Group Plc.Market ShareThe lack of domestic advisers for a deal involving U.K. and Spanish companies illustrates the uphill battle Europe’s banks face in clawing back back market share from Wall Street.The coronavirus outbreak and the ensuing economic collapse have ended a decades-long bull run in M&A, meaning missed roles on mega transactions will be even more sorely felt. April was the worst month for deals globally since 2004, according to data compiled by Bloomberg. The O2-Virgin Media deal announced Thursday is the largest globally since Covid-19 was declared a pandemic in March.Related News: Dealmaking in April Drops to Lowest Point Since 2004A select group of European banks led by BNP Paribas SA has been aggressively lending to the region’s corporates amid the coronavirus pandemic, hoping to parlay that into other business down the road. Still, as the Telefonica-Liberty deal shows, it will be an uphill battle for European advisers to pry the hottest M&A mandates from the Americans.Related News: Top European Lenders Fill Pandemic Void as U.S. Banks Eye HomeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The biggest deal since the coronavirus forced the world into a lockdown was sealed thanks to a frantic round of late night calls among bearded faces and without even a virtual toast to mark the creation of a new force in the British telecoms sector. Telefonica started courting Liberty Global in October sharing its ambition of crafting a deal for its British mobile operator O2 that would help the Spanish telecoms firm cut debt while retaining significant exposure to the UK market, three sources close to the deal told Reuters. Liberty's billionaire founder John Malone was onboard, eager to extract value from British cable firm Virgin Media.
LBTYK, LBTYA, LBTYB earnings call for the period ending March 31, 2020.
(Bloomberg Opinion) -- Renege on a deal with the Agnellis and you can expect to pay for it.Scion John Elkann has refused to renegotiate the Italian family’s $9 billion sale of its reinsurance business after the buyer, French mutual Covea, sought to revise the terms. A deal at a lower price could have made sense for both sides. The mystery is why Elkann saw more advantage in playing hardball, with the risk of the deal failing. Covea walked away on Tuesday.If Covea had been smarter, it wouldn’t have agreed to pay so much for PartnerRe in the first place. The transaction was done in early March when it was clear that the coronavirus was taking hold outside Asia. But Covea wasn’t trying to wriggle off the hook entirely. It has a strategic goal to diversify away from its home market. Buying PartnerRe for less would achieve that.Chiseling a bit off the price might still have left this a fair deal. Analysts at Bank of America Corp. value PartnerRe at $7.2 billion. They reckon the initial sale price was a little shy of what could have been justified, but if you factor in a correction in reinsurance stocks during the Covid-19 crisis then a 20% haircut is warranted.Now consider the strategic value to the Agnellis of having a big pot of cash to deploy in a world where asset values have fallen almost everywhere. On that basis, even a less than fair price might have been worth taking.So why not budge? One possible answer lies in the regulatory risks surrounding the deal. The chances of approval were harder to predict here than would usually be the case. The transaction would have taken Covea into new territory. Insurance industry supervisors would have been mindful of it stretching the purchaser’s management. It’s one thing for PartnerRe’s owners to accept a reduced price, quite another if the lower proceeds aren’t certain to land anyway.Another reason for standing firm lies in the reputational risks of budging. Blinking in M&A carries long-term costs by undermining your credibility the next time you want to do some dealmaking. John Malone, the U.S. cable billionaire, let the sale of his Swiss business collapse last year rather than bow to pressure to cut the price. Perhaps it’s no coincidence that his next big transaction — last week’s combination of his U.K. assets with those of Spain’s Telefonica SA — was struck on favorable terms to his vehicle, Liberty Global Plc.All the same, it’s still a puzzle that Elkann didn’t try harder to save this. The last explanation must be the possibility of financial redress. That wouldn’t come from the reported break fee — at about 2% of the deal, it’s puny. Juicy compensation would require litigation.Exor NV, the Agnellis’ investment vehicle, doesn’t say in its statement whether it will sue. While neither side would relish a court battle, Elkann might calculate that Covea would want legal action even less than the Italian side. A settlement would therefore make sense. The talks may not be over yet.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Last week BT unveiled a plan to invest £12bn to extend its full fibre network to 20m homes. BT chief executive Philip Jansen told the Financial Times this week that the dividend cut — which frees up around £2.5bn in cash for fibre investment — was the “final piece of the jigsaw” in preparing the company for a bright future.
(Bloomberg Opinion) -- For BT Group Plc, two things have long been sacrosanct: the dividend and ownership of its lucrative network. In 2020, it seems, the temple walls are being torn down.Over the past few years, carriers across Europe have looked at the vast sums needed to upgrade their fiber-optic connections and roll out fifth-generation wireless networks, and then at the lofty valuations put on existing network assets. One by one, they’ve decided to raise money from the latter to fund the former. It was a puzzle why Britain’s former national telecoms operator continued to be a holdout.On Thursday, the Financial Times reported that BT is in talks to sell a stake in broadband infrastructure division Openreach in a deal that could value it at 20 billion pounds ($24 billion) — twice BT’s market value. The report came a week after the company scrapped its dividend. If true, it would reveal just how urgently the London-based firm needs cash to fund a multibillion-pound full-fiber upgrade program, honor its pension commitments and preserve its investment-grade credit rating, according to Bloomberg Intelligence analyst Matthew Bloxham. There’s also the 5G network to think about.There would be hurdles to a deal — not least, foreign ownership of Britain’s main fixed network. The FT named Australia’s Macquarie Group Ltd. and an unidentified sovereign wealth fund as the potential investors. What's more, Jansen bought 2 million pounds of shares this week — if a deal really were in the works, it's unlikely that BT's compliance team would have permitted such a trade.BT Chief Executive Officer Philip Jansen has already been making a lot of the right moves to get in shape for the challenges ahead. The abandoned dividend and a new cost-cutting program will bring savings of some 5 billion pounds over the next five years, while the U.K. government has pledged a further 5 billion pounds to accelerate the rollout of fiber optic networks. But it’s hard to look beyond the huge appetite for network infrastructure, and the valuations similar assets have attracted.Just last week, Liberty Global Plc’s British broadband business was valued at 9.3 times Ebitda (a measure of operating performance) in a deal to combine it with Telefonica SA’s local mobile unit. BT as a whole is valued at just 1.3 times earnings on the same basis. The operator might have acted sooner were it not for Chairman Jan du Plessis’s staunch opposition to any divestment. Shortly after announcing Jansen’s appointment as CEO in 2018, du Plessis told the Daily Telegraph that 100% ownership of the division was best for “BT, for Openreach and for our stakeholders.” Just last week, when asked about the possible separation of the unit, Jansen responded, “Not now.”But selling a minority stake in the unit looks like the right move to shore up the company’s balance sheet. The right price would help BT stomach the humble pie brought on by a reversal of strategy, and reassure investors that, yes, even after the network investments, one day, the dividend will return.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Britain’s biggest landline network has brought on a new supplier to help cut its reliance on China’s Huawei Technologies Co. and ramp up construction of a nationwide fiber-optic system.BT Group Plc’s infrastructure unit Openreach signed a long-term contract to bring in U.S. firm Adtran Inc. alongside Huawei and Finland’s Nokia Oyj as a strategic partner. Adding an American component maker will help London-based BT limit the use of China’s Huawei technology in its fiber-optic network and meet national security rules. The parties didn’t disclose financial terms.In January, Britain capped the amount of data that can be carried over Huawei’s full-fiber and 5G equipment at 35%, and gave networks three years to comply. The move dealt to a blow to the Shenzhen-based vendor, but stopped short of U.S. demands for an outright ban.Huawei makes up 44% of the U.K.’s full-fiber market, according to the government. BT said overhauling systems to obey the rules may cost it 500 million pounds ($611 million), though mainly it pointed to the changes it needs to make to wireless towers.“It helps Openreach to be able to execute on their plan and still abide by those requirements,” Jay Wilson, Adtran’s chief revenue officer, said in an interview. The contract could make up a 10th of Adtran sales during the peak of its build, he added. The Huntsville, Alabama-based company also supplies some of BT’s small startup rivals, as well as big U.S. carriers like AT&T Inc. and European peers like Deutsche Telekom AG.Read more: Britain’s Plan to Get Working Again Doesn’t Seem to Be WorkingThe contract comes a week after BT accelerated its planned fiber rollout, pledging to connect 20 million premises by the mid- to late-2020s if conditions allow. It also scrapped dividend payments to help pay for the pledge, and rivals Telefonica SA and Liberty Global Plc announced the same morning that they were merging their U.K. units to create a stronger rival to the former state monopoly.Bloomberg first reported Openreach’s search for a new supplier in November. Peter Bell, the company’s network technologies director, said in a statement that the Adtran deal would help the U.K. “bounce back from the Covid-19 pandemic” with a better broadband network. The U.K. has lagged behind European neighbors in building out glass-based fiber connections, relying instead on lower-bandwidth, copper-transmitted wires.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The following are the top stories on the business pages of British newspapers. Telefónica SA, the Spanish owner of O2, and Liberty Global Plc, that owns Virgin Media, have agreed to a 31 billion pounds ($38.42 billion) deal to merge their two UK operating businesses. British Banks stand to lose 80 billion pounds due to the coronavirus crisis but will be able to withstand because of their high levels of capital, the Bank of England said on Thursday.
Liberty Global's (LBTYA) first-quarter 2020 results reflect relentless subscriber attrition amid the pandemic woes.
(Bloomberg Opinion) -- If you listen to the protagonists, Europe’s biggest telecoms deal in a decade is all about the customers. The details of the merger of Virgin Media, the British cable unit of Liberty Global Plc, and O2, Telefonica SA’s U.K. mobile carrier, tell a different story.According to the companies, the 31.4 billion-pound ($39 billion) deal is aimed at creating a giant company that will give consumers the option of buying all of their broadband, television, mobile and fixed-line services from a single supplier. At the moment, only BT Group Plc provides a similar “converged” telecoms package in the U.K. It’s true that the new Virgin-O2 will compete more closely with BT, but the structure of the joint venture suggests a different ambition too. Liberty, which is backed by the cable billionaire John Malone, and Spain’s Telefonica are approaching the deal in much the same way as a private equity firm, by saddling the new entity with debt and paying themselves a special dividend. The companies say the venture will be able to carry debt representing five times its Ebitda (a measure of operating performance), so they plan to add another 6.4 billion pounds of borrowings to the Virgin-O2 business. They will then split the proceeds.Rather than aiming to cut consumer prices, Telefonica appears to be prioritizing its own strained balance sheet — which is understandable enough. Chief Executive Officer Jose Maria Alvarez-Pallete Lopez is urgently working to reduce his company’s mountain of debt, and he’s already had to call off a money-spinning initial public offering of O2 once. After the deal with Malone, Telefonica will get 5.7 billion pounds, including a 2.5 billion-pound payment from Liberty.In fairness, O2 will no longer sit on Telefonica’s income statement, and the subsequent reduction in the Spanish parent’s earnings will counterbalance the benefits of any cut to its debt when you look at its leverage ratio (the level of a company’s debt relative to its earnings).Nevertheless, the decision to saddle the new combined entity with a lot of new debt suggests it doesn’t plan to undercut BT aggressively on price. With its borrowings stretched to the upper limit, Virgin-O2 won’t be able to afford to dilute its profitability. Were it planning a serious attack on its rival’s market share, it would probably have left itself more firepower. A proposed 110 million pounds of annual “revenue synergies” — a slightly iffy measure of how many more sales two companies can generate when they join together — would only add 1% of the combined firms’ existing sales.For all of the merger’s potential to cross-sell mobile services to broadband customers and vice-versa, and to save costs through sharing networks, the deal looks more like a clever piece of financial engineering. Indeed, Mark Evans, the O2 CEO, has often played down the appetite for converged telecoms offerings in the U.K. If Virgin can convince O2 customers to merge their mobile-phone accounts with its longer-term broadband and home phone contracts, that would stop people from switching to other providers too regularly. The more predictable revenue stream would allow the new company to sustain its higher levels of debt.There’s nothing inherently wrong with any of this. But let’s not dress it up as something that it isn’t. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Liberty Global Plc Chairman John Malone famously clashed with fellow media magnate Barry Diller during an almost 20-year business partnership that involved joint ownership of the IAC Interactive media empire.“These last 17 years of my association with John Malone and Liberty Media have been a great, and occasionally, wild ride,” Diller said in 2010 after an acrimonious business breakup that involved lawsuits, accusations of bad governance and sometimes heated negotiations.Malone is embarking on another major media tie-up -- this time merging broadband network Virgin Media with O2, the U.K. wireless business of Spain’s Telefonica SA, to challenge former monopoly BT Group Plc as Britain’s dominant phone company.Negotiators for both sides have worked for months to structure the 31.4 billion-pound ($39 billion) partnership in a way that minimizes the kind of strife that has often characterized jointly owned businesses -- including Malone’s.“When joint ventures fail, it tends to be when one side takes a long-term view and the other a short-term view and investors get confused,” said Javier Borrachero, an analyst at Kepler Cheuvreux.It isn’t temperament or worldview that have brought together Malone and Telefonica Chairman Jose Maria Alvarez-Pallete. Malone, a libertarian who once described taxes as “economic leakage,” has earned billions from serial dealmaking and complex financial engineering. Pallete is a quietly spoken devout Catholic known for weighing the social impact of his decisions and exhausting every option before ditching an underperforming business.The alliance hammered out over months of talks overseen by Pallete and Liberty Global’s Denver-based Chief Executive Officer Mike Fries is born of necessity. Europe’s telecommunications industry has become a wasteland for profit growth and the venture announced on Thursday will bring merger benefits worth 6.2 billion pounds, according to the companies.The structure -- an equally owned joint venture -- is nonetheless unusual for such a big European telecom business.Strict RulesTo ensure the different business cultures don’t lead to tension down the line, the agreement goes well beyond the initial deal terms to include agreements on debt ratios, the scale of future investments and a stipulation that any spare cash must be distributed equally to the two owners.Plenty could still go wrong. Phone companies are sinking billions of pounds into a new generation of 5G wireless networks just as the U.K. economy reels from Europe’s deadliest coronavirus outbreak. The new company will be racing against BT to build Britain’s strongest fiber-optic network, but the outlook for profits is uncertain.Fries and Pallete have rarely done business together and the complexity of combining a mobile operator and a cable broadband and TV business adds to the challenge. Their priorities have also differed: Fries has made Liberty Global a byword for leverage and multi-billion-dollar share buybacks. Pallete has focused on preserving cash to pay down a debt pile of 37.7 billion euros ($40.1 billion), one of the biggest in the industry.“Liberty are very financial-engineering focused, with lots of leverage and management fees paid to the parent company,” Bloomberg Intelligence analyst Matthew Bloxham said. “Telefonica is a bit more traditional, but I think they’ll be happy with this approach too, if it’s all done off balance sheet.”The alliance is crafted carefully to ensure a balance of power. Liberty and Telefonica will have equal equity stakes and board representation, with a chairman from one of the parent companies that will rotate every two years. The neutral approach will allow the owners to avoid having to consolidate the venture’s debt.Different StrokesDiller referred to Malone as a “nightmare,” with a tendency to conduct endless negotiations over every transaction, according to court testimony when the two clashed over a new structure for IAC a decade ago. Malone’s Liberty Media was the company’s largest shareholder at the time. The two sides eventually settled, letting IAC proceed with a spinoff in exchange for additional board seats for Liberty. The two had further run-ins over investments in concert promotion, online travel review company TripAdvisor Inc. and Expedia Inc.In 2018, Malone began to step back from his empire, saying he’d like to reduce travel and spend more time with his wife.People in Pallete’s entourage say the 56-year-old trained economist prefers to work by consensus and avoids the pushy showmanship of many dealmakers. In late November, three months after Telefonica’s shares reached their lowest in more than two decades, he responded to criticism that he is slow to act by announcing a sweeping restructuring that includes the sale of underperforming Latin American businesses and plans for a flurry of deals.Alongside M&A, he’s equally focused on developing in-house technology to accelerate revenue growth, convinced there are missed opportunities to monetize the data flowing through Telefonica’s pipes.In the U.K. in 2020, the interests of Malone and Fries have aligned with Pallete’s. All are viewed as shrewd corporate financiers, and see the sector’s future in combining mobile, internet and TV services into packages that users won’t ditch if prices rise.Still, the terms of their partnership include an opportunity for an initial public offering after three years or a sale of the venture after five years, and each may be harboring plans to buy their partner out.“I think Liberty is more committed to the U.K. than Telefonica right now,” said Kepler’s Borrachero. “But who knows? Maybe Malone wants to retreat from Europe in the long run.”(A previous version of the article incorrectly said the chairman would have a casting vote on the board.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Liberty Global Ventures and Zouk Capital today announce a joint venture partnership, Liberty Charge, which will roll out on-street residential electric vehicle charging points in the UK.
The biggest deal since the coronavirus forced the world into a lockdown was sealed thanks to a frantic round of late night calls among bearded faces and without even a virtual toast to mark the creation of a new force in the British telecoms sector. Telefonica
(Bloomberg Opinion) -- John Malone has proved the market wrong again. The billionaire “cable cowboy” is merging his U.K. Virgin Media broadband business with Telefonica SA’s British mobile unit, O2, on much better terms for him than investors anticipated.The deal creates a company that offers internet and television services, as well as fixed and mobile telephony. It will be a strong second to BT Group Plc in the U.K. telecoms market, and will be 50% owned by each side. The founding companies reckon that Virgin, owned by Malone’s Liberty Global Plc, is worth some 19 billion pounds ($23 billion). Deduct net debt and Liberty contributes assets worth roughly 7 billion pounds to the combination. O2, debt free, they value at 13 billion pounds.Tot it up and each side starts out with 10 billion pounds of equity value in the new company. Liberty then makes a 2.5 billion-pound payment to Madrid-based Telefonica so both partners get out what they put in. Analysts had expected that this “balancing payment” would be much higher based on their lower valuations for Virgin.The market’s implied valuation of Virgin has long frustrated Liberty. This deal looks like a riposte to that. True, Virgin’s value is flattered by tax credits from past investments, estimated to be worth about 1.5 billion pounds. Some observers will also question the high multiples put on both businesses — 9.3 times 2019 operating income before depreciation and amortization at Virgin, and 7.8 times at O2. Either way, the terms say Virgin is worth more than common wisdom assumed.How so? Is this what happens when big deals are done on Zoom? Perhaps the market simply hadn’t analyzed Virgin in enough detail — it’s a U.K. asset trapped in a U.S. holding company. The terms may also reflect the relative negotiating positions of the two sides. Telefonica arguably had fewer plan Bs than Virgin if it walked away from talks. Pairing O2 with a rival British mobile group would have run into antitrust issues, although an alliance with Comcast Corp.-owned Sky may have been a possibility. The capital markets look shut to an initial public offering of the size of O2 right now.But Telefonica hardly leaves empty handed. The Virgin-O2 combination will immediately take on more debt, allowing the Spanish company to extract 5.7 billion pounds of cash from the merger. Ceding full ownership means it will lose the O2 earnings from its accounts, so the overall impact on its leverage will be negligible. But Telefonica should enjoy a more reliable stream of dividends from the combination.What’s more, the “converged” internet, TV and mobile offering of Virgin-O2 will give it a much stronger investment case. A sale of a stake in an IPO further down the line would really give Telefonica the ability to pay down its debts. The jam in this deal is coming to Malone today, and Telefonica tomorrow.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.