Virgin and O2 Clinch U.K. Approval for $44.4 Billion Deal
Telefonica SA and Liberty Global Plc won approval to combine their U.K. operations O2 and Virgin Media, clearing the way for the creation of a 31.4 billion-pound ($44.4 billion) powerhouse that will reshape the nation’s phone markets.
The tie-up was scrutinized over concerns the combination could lead to higher prices and poorer wholesale services, the Competition and Markets Authority said Thursday. The CMA concluded, however, that was not likely.
“After looking closely at the deal, we are reassured that competition amongst mobile communications providers will remain strong and it is therefore unlikely that the merger would lead to higher prices or lower quality services,” Martin Coleman, CMA panel inquiry chairman, said in the statement.
Telefonica SA, O2’s Spanish parent company and John Malone’s Liberty Global Plc had been looking to strike a deal for years, with Liberty’s Virgin Media a longstanding favorite deal-target gossip topic of European telecom bankers. The companies valued the deal at 31.4 billion pounds when it was announced a year ago.
Billionaire “cable cowboy” Malone and Telefonica SA said they now expect the deal to be completed on June 1. Virgin Media’s Chief Executive Officer Lutz Schueler and O2’s Chief Financial Officer Patricia Cobian will take up those roles at the combined group. No decisions about branding have been announced yet.
“This is a watershed moment in the history of telecommunications in the U.K. as we are now cleared to bring real choice where it hasn’t existed before, while investing in fibre and 5G that the U.K. needs to thrive,” Mike Fries, CEO of Liberty Global, and José Maria Alvarez-Pallete, CEO of Telefonica, said in a statement.
The joint venture will merge national mobile company O2 with Virgin Media’s cable and fiber connections, which cover about half of the U.K., mounting a fiercer challenge to former state monopoly BT Group Plc.
The combined entities would take about 34% of Britain’s telecom service revenues between them, eclipsing the current No. 1 operator BT Group, according to research last year from Goldman Sachs.
Despite their combined clout, competition in the U.K. leased-line market is sufficiently robust, the CMA concluded. “This means the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom,” the regulator said.
Similarly, there are enough other providers of mobile networks for telecommunications firms to use, the CMA said, “meaning O2 will need to keep its service competitive with its wholesale rivals in order to maintain this business.”
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