Virgin Media O2 eyes CityFibre

Virgin Media O2 (VMO2) is reportedly eyeing a £3 billion takeover of the UK independent fibre operator, CityFibre.

The Telegraph reported Mike Fries, chief executive offer of Liberty Global, parent company of VMO2, has been in talks with Cityfibre’s founder Greg Mesch over a merge of the two companies.

Transactions could take place through Liberty Global, its full-fibre joint venture Nexfibre, a new separate entity, or VMO2.

VMO2 is said to be working with bankers at US-based investment banking boutique LionTree, considering potential deals for other smaller alt nets broadband providers.

Cityfibre is the largest alt-net provider in the UK, it has since raised £4.9 billion in debt financing and £1.1 billion equity. If carried out, the acquisition would add 2.5 million households to VMO2’s customer reach. The deal will also help drive VMO2’s goal of upgrading its entire network to full fibre.

A bank analysis report by Jeffries on the leaked talks between VMO2 and CityFibre stated, “VMO2’s promised network expansion has been heavily delayed. Acquiring smaller alt-nets that run out of funding seems like a plausible way of VMO2 bolstering its coverage effort. Alongside this, we believe that VMO2 might opt to buy wholesale access from Openreach in some locations, as an alternative to building its own parallel coverage.”

It is likely the deal will not be successful according to Jeffries “as taking out the UK’s largest alt-net would leave the policy objective of three competing networks in tatters.

The reported added, “a VMO2-Cityfibre combination would appear to threaten the regulatory objective of network competition providing choice for ISPs, leading to better outcomes for consumers. With a back-book comprising millions of customers that have been subject to multiple years of retail price increases, we question what incentive VMO2 has to compete down wholesale pricing.”