U.K. Telecom Units Join In Rare Megamerger Amid Global Pandemic -- WSJ
May 08 2020 - 03:02AM
Dow Jones News
By Julie Steinberg and Ben Dummett
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 8, 2020).
John Malone's Liberty Global PLC agreed to combine its U.K.
telecommunications business with that of Spain's Telefónica SA,
creating a telecom giant worth nearly $39 billion in the biggest
deal since the global coronavirus shutdown started.
The timing is unusual. Global deal-making across many sectors
has been sidelined, with companies shelving plans for potentially
risky tie-ups until the impact of the crisis on their businesses
and the global economy is clearer.
Under the deal, Liberty's Virgin Media would merge with
Telefónica's O2, pooling the two companies' 46 million video,
broadband and mobile subscribers, the companies said Thursday. The
units generated GBP11 billion ($13.6 billion) in combined annual
revenue in 2019.
The deal values Virgin Media at GBP18.7 billion, including debt,
and O2 at GBP12.7 billion.
The pandemic is underscoring the need for telecom companies to
offer packages of cable, internet, wireless and landline-phone
services on a single bill -- so-called quad-play packages.
Providing these services can help retain customers, a key
consideration as consumers look to cut costs and providers seek to
make their existing services stickier, some bankers say.
Another consideration is the skyrocketing use of internet
services as customers work from home, a boon for telecom companies.
This makes it easier for them to pursue a deal at a time when
companies from sectors suffering more adverse effects from the
crisis would be unable or unwilling to.
The companies began talking in earnest around December,
according to people close to the deal, and face-to-face meetings
between executives stopped after March 11, Telefónica Chief
Operating Officer Angel Vilá said at a news conference
Thursday.
Teams in Denver, London, Madrid and Amsterdam made hundreds of
video calls to crunch the numbers, hammer out regulatory matters
and negotiate the terms of the deal, the people close to the
situation said. The calls necessarily involved barking dogs and
screaming children, they said.
Like many working from home, executives' attire ranged from
athletic gear to jeans to nicer shirts. One person said he was
gently ribbed about too many boxes cluttering up his background,
but that he made sure a picture that was also visible was a nice
one.
Typically, deals require site visits as part of due diligence,
which couldn't happen under the lockdown, but people familiar with
the deal said the companies were already familiar with each other's
assets.
Mr. Malone earned the nickname the "Cable Cowboy" for knitting
together a cable empire in the U.S. More recently, he has tried to
do the same thing overseas, focused on internet delivery, with
Liberty Global, a U.K.-incorporated media giant run out of
Denver.
The efforts come amid the fitful global emergence of 5G,
networks that promise faster downloads that can handle what
industry experts say will be an explosion of video content
consumption. The new technology also promises to usher in more
connected devices, at home and across businesses.
The deal promises savings of GBP6.2 billion, the companies said.
As part of the terms of the merger, which the companies said
includes recapitalization financings, Telefónica will receive
GBP5.7 billion in cash. That includes an equalization payment to
Telefónica of GBP2.5 billion to account for the difference in value
and debt of the two units. Liberty will get GBP1.4 billion of
proceeds in the transaction, stemming from the recapitalization
financings, the companies said.
One person close to the deal said its structure wasn't
contingent on either company's individual valuations, and the
pandemic didn't play a meaningful role because the companies aren't
overly relying on the stock or bond markets to get it done.
The deal doesn't include Virgin Media's Ireland business, which
Liberty Global will keep.
Liberty Global said the deal would marry Virgin Media's strong
position in broadband and entertainment offerings in the U.K. with
O2's reliable telecom network. "We're committed to this market,"
said Liberty Global Chief Executive Mike Fries.
Global deal-making during the pandemic has slowed, bankers and
corporate executives say. Some $700 billion worth of mergers and
acquisitions have been announced since the beginning of the year,
down from $1.2 trillion a year earlier, according to Dealogic.
--Mauro Orru contributed to this article.
Write to Julie Steinberg at julie.steinberg@wsj.com and Ben
Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
May 08, 2020 02:47 ET (06:47 GMT)
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