The world's second-largest mobile operator struck a deal with US cable pioneer John Malone's Liberty after years of on-off talks to become a pan-European leader able to challenge the dominance of former monopolies such as Deutsche Telekom. It acquired Kabel Deutschland in 2013 and then bought Spanish cable player ONO a year later. Therefore, there would be no reduction in cable competition and customers could still opt to take IPTV or satellite television services instead.
The deal will allow Vodafone to expand its mobile, TV and broadband services in Hungary, Romania and Czech Republic.
UPC Czech and UPC Hungary are the largest cable operators in the Czech Republic and Hungary, Vodafone continued, with 1.5 and 1.8 million homes passed, representing 33% and 43% of total households, respectively.
That trend also explains why Liberty is willing to exit such markets where it does not own the full range of services including mobile.
Vodafone chief financial officer Nick Read recently hinted the operator was interested in buying out Liberty's stake in the companies' 50:50 Dutch joint venture, and Colao has said United Kingdom operations could be included in future talks.
Liberty Chief Executive Mike Fries said he was confident it would be passed, adding that even when combined, Vodafone and Liberty would be half the size of Deutsche. "This is one of those moments". LionTree and Goldman Sachs are acting as financial advisers to Liberty Global on the transaction. Plus, we will retain all cash generated from the four businesses through closing.
Amid intense competition in the mobile sector, and a belief that fixed-mobile convergence is the future, Vodafone has invested significantly in fixed infrastructure, building or acquiring networks in Spain, Italy, Germany and Portugal, while it has wholesale agreements in other markets, including the UK.
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"This is also an important and exciting transaction for our customers and employees".
Vodafone's share price rose by 1% to 209.8p after announcing the long-expected deal with Liberty Global, chaired by U.S. billionaire John Malone, who is also the largest shareholder in the business.
"This 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", Fries said in a phone interview.
Vodafone's cable business operates in 13 of Germany's 16 federal states, while Unitymedia's operation covers the remaining three states. As now structured, upon closing, a change of control will be triggered with respect to Unitymedia's debt, and lenders and bondholders will have an option to put their debt to Vodafone.
The deal requires regulatory approval by the European Commission, which is expected by the middle of next year. There is limited overlap and, therefore, no negative impact on competition resulting from the Transaction.
The two companies, already working toger in Nerlands, engaged in negotiations in February on purchase of Liberty's operations in those countries, where services of both were overlapping.