Vodafone to pay €18.4bn for Liberty Global assets in Europe

Vodafone has agreed to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania for an enterprise value of €18.4 billion.

Vodafone said the deal will create a “converged national challenger to the dominant incumbent in Germany” and claimed that it will also transform its fixed line and convergence strategy in key Central and Eastern European markets.

The major agrement will see Vodafone takeover Liberty Global’s Unitymedia cable network in Germany and the fixed line and TV assets it runs under the UPC brand-name in the Czech Republic, Hungary and Romania.

This will leave Liberty with cable TV and broadband operations in the UK, Ireland, Belgium, Switzerland, Poland and Slovakia, following its recent €1.9 billion sale of UPC Austria to T-Mobile. Liberty also owns 50% of VodafoneZiggo, a joint venture in the Netherlands.

Vodafone said the deal will establish it as the leading next-generation network owner in Europe, with 54 million cable or fibre homes and a total next-generation network reach of 110 million homes and businesses.

“This transaction will create the first truly converged pan-European champion of competition,” Vodafone CEO Vittorio Colao said in a statement. “It represents a step-change in Europe’s transition to a Gigabit Society and a transformative combination for Vodafone that will generate significant value for shareholders.”

Liberty Global CEO Mike Fries described the deal as an important transaction for its customers and employees, claiming that in each of the markets covered by the deal, the combination of the two companies will “transform the competitive landscape and bring a new level of convergence to customers”.

“Now more than ever, Europe needs strong competition from scaled national challengers willing and able to invest in next-generation wireless, video and broadband services,” he said.

Vodafone and Liberty expect the deal to close in mid-2019, subject to regulatory approval by the European Commission.

Vodafone argued that the two businesses are “highly complimentary” in each country with “limited overlap”, pointing out that Unitymedia operates its cable businesses in different parts of Germany than Vodafone.

Vodafone also said it is primarily a mobile player in the Czech Republic, Hungary and Romania with “no meaningful presence in each country’s fixed line or TV segments.”

However, Vodafone is already Germany’s cable leader following its €7.7bn acquisition of Kabel Deutschland in 2013 and the deal promises to combine it with the country’s number two cable player, Unitymedia.

German incumbent Deutsche Telekom had an IPTV and satellite TV subscriber base of 3.14 million customers in Germany at the end of 2017, and CEO Timotheus Höttges has already spoken out against a combination of Vodafone and Liberty Global’s assets.

After news emerged earlier this year that talks were underway between the two companies, Höttges branded a potential tie-up between Vodafone and Liberty as “completely unacceptable”, claiming: “I do not see that this kind of concentration in the cable market can be supported from regulatory bodies.”

In a statement issued to DTVE today, a spokesperson from Deutsche Telekom said: “Quite a number of stakeholders in Germany have already voiced their concerns. A re-monopolisation of cable networks is critically evaluated by experts.

“‘Television only via Vodafone’ might not only make media politicians suspicious, there are also considerable restrictions for consumers to fear. This is why experts think, that the deal cannot be approved. We share this view.“

Commenting on today’s news, media analyst Paolo Pescatore, vice-president of multiplay and media at CCS Insight, said: “We strongly believe that regulators will block or restrict the deal. Vodafone and Liberty Global have a relatively solid presence in the fixed-line and TV markets, so any move would cut the number of companies in both segments.”

If completed, the Vodefone-Liberty deal is expected to comprise an approximate €10.8 billion cash consideration paid to Liberty Global and €7.6 billion of existing Liberty debt, subject to completion adjustments.

The four Liberty Global businesses covered by the deal represented approximately 28% of Liberty Global’s consolidated operating cash flow in 2017, and the sale price represents a combined total enterprise value of 11.5 times 2017 adjusted segment operating cash flow.

In the event that the deal does not close, a break fee of €250 million will be payable by Vodafone in certain circumstances.