Vodafone's 26,5 Billion Euro Liberty Deal to Reshape European Telecom
Vodafone is shaking up Europe’s fragmented media and telecom market with an 18.4 billion-euro deal to buy almost a third of Liberty Global, according to Bloomberg.
With the acquisition of Liberty Global’s German and Eastern European units, Vodafone CEO Vittorio 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 Colao in his decade running Vodafone, threatens the continent’s biggest carrier Deutsche Telekom in its home market.
The deal, announced after months of talks, has the CEO of German’s former phone monopoly spitting fire. Tim Hoettges, seeking his own $26.5-billion American tie-up of unit T-Mobile with Sprint, vowed to fight against what he characterized as a remonopolization of Germany’s cable market by Vodafone, while Colao appealed to ambitions by European regulators to challenge incumbents to invest.
The transaction gives Vodafone, already Germany’s largest cable operator, the second-biggest cable network, as well as Liberty Global’s Czech Republic, Hungary and Romania divisions, providing more scale to bundle internet, phone and TV services. It follows years of on-and-off talks between Vodafone and Liberty. While the two inked a joint venture in the Netherlands in 2016, discussions about more transformative mergers or asset swaps had stalled on disagreements over valuations and debt.
Vodafone will pay Liberty Global 10.8 billion euros of cash and assume 7.6 billion euros of debt, Vodafone said. After paying for the integration, cost and capex synergies are valued at 6 billion euros by Vodafone, while revenue synergies amount to 1.5 billion euros. 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. Vodafone in February said it was in talks with Liberty about acquiring some continental assets where the two compete.
The agreement appears to signal a retreat by Malone, by focusing Liberty more on the U.K. and Ireland, its largest market, and follows the sale of its Austrian cable division to DT late last year. However, Liberty could choose to take the cash and double down in markets where it can buy rivals to scale up. The deal marks a significant consolidation for European carriers, which remain significantly more fragmented than their U.S. peers. It will face scrutiny from regulators, either in Germany or at the European Union.
Hoettges 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, and on Wednesday said the tie-up would "distort competition" by creating a "giant.” Deutsche Telekom was forced by regulators to sell off its cable assets last decade and Colao suggested his counterpart’s remarks stemmed from concern about increased competition.
The deal is “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’s CEO, said in an interview. 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.