By Thomas Seal and Joe Mayes
Vodafone is shaking up Europe’s fragmented media and telecom market with a €18.4bn deal to buy almost a third of John Malone’s Liberty Global, part of a global push for scale as carriers face massive network investments and competition from digital players.
US billionaire Mr Malone’s Liberty is best known here as the owner of cable firm Virgin Media and broadcaster TV3, as well as for owning a significant stake in ITV.
Virgin Media figures show that in Ireland it had 1.06 million so-called revenue-gathering units in its cable, internet, and phone operations at the end of March, up from a year earlier but down from the end of December.
Including TV3, it said its total Irish revenues grew 11.6% to €109m in the quarter from a year earlier.
Mr Malone also owns a number of hotels in central Dublin and stud farms, including Castlemartin in Co Kildare, the estate formerly owned by Tony O’Reilly.
The agreement appears to signal a retreat by Mr Malone, by focusing Liberty more on the UK and Ireland, its largest markets, and follows the sale of its Austrian cable division to Deutsche Telekom late last year.
However, Liberty could choose to take the cash and double down in markets where it can buy rivals to scale up.
“We’re moving to a region that’s going to be dominated by a handful of players,” said Paolo Pescatore, a media and telecom analyst at CCS Insight in London.
“We expect Liberty to use these funds to strengthen its position on other markets such as the UK,” or in Switzerland, he said.
The companies both seek to be top carriers in each of the markets where they operate, but Liberty had been struggling to find a way to gain clout with mobile services in Germany.
The deal is what the German market needs, said Mike Fries, Liberty’s CEO.
“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,” he said.
The tie-up, scheduled to close 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 chief executive Vittorio Colao told reporters yesterday a deal in the UK is not on the agenda and that Vodafone is very happy with how a Netherlands arrangement is working, while Mr Fries said no other arrangements are currently being contemplated.
Still, the transaction sets the stage for Vodafone to potentially scoop up the rest of Liberty in a few years, if it’s cheap enough, said RBC analyst Jonathan Dann.
With the acquisition of Liberty’s German and Eastern European units, Mr Colao is reshaping spheres of influence in a way that has already drawn a harsh rebuke from his closest rival, Deutsche Telekom.
The purchase, the largest by Mr Colao in his decade running Vodafone, threatens the continent’s biggest carrier Deutsche Telekom in its home market.
The deal, which was announced after months of talks, has the CEO of German’s former phone monopoly spitting fire.
Tim Hoettges, seeking his own multi-billion American tie-up of unit T-Mobile with Softbank Group’s Sprint, vowed to fight against what he characterised as a re-monopolisation of Germany’s cable market by Vodafone, while Mr Colao appealed to ambitions by European regulators to challenge incumbents to invest.
“The EU has always been talking about the need to have cross-country competitors in telecoms,” Mr Colao told reporters. “This is actually the first and biggest creation of one of those, both in mobile and fixed,” he said.
The transaction gives Vodafone, already Germany’s largest cable operator, the second-biggest cable network, as well as Liberty’s Czech Republic, Hungary, and Romania divisions, providing more scale to bundle internet, phone, and TV services.
While the two inked a joint venture in the Netherlands in 2016, discussions about more transformative mergers had stalled. Vodafone will pay Liberty €10.8bn of cash and assume €7.6bn of debt, Vodafone said.
Bloomberg. Additional reporting, Irish Examiner