What’s Going On Here?Telefonica isn’t here for “How’s your lockdown going?” chitchat: news broke over the weekend the telecoms giant is discussing a $30 billion merger with Liberty Global, and it means business. What Does This Mean?Liberty Global has headquarters in the US, Netherlands, and the UK, where it owns mobile and cable group Virgin Media. Spain-based Telefonica, meanwhile, has an empire sprawling across the Americas and Europe – including the UK, where it owns the O2 mobile network, rival to Virgin.
A merger of their UK businesses could help the combined company better compete with market-leaders Vodafone and BT by offering a broader range of combined cable and mobile products and services, as well as by reducing duplicate costs like head office staff and 5G infrastructure. Why Should I Care?For markets: Safe just got safer.
Telecoms companies are usually lauded for their “defensive” nature: their long contracts give them a reliable stream of income and give investors typically predictable dividends. But Telefonica’s large amount of debt might’ve been putting those payouts at risk. By shedding its UK business, then, it’ll be able to use the influx of cash to reduce its debt, invest in higher-growth countries, and keep those all-important dividends a-flowin’.
The bigger picture: Don’t rain on my parade.
Both stocks’ prices initially rose in response to the negotiations, but there are still a few hurdles to clear before a deal’s finalized. For one, both sides are still working out who exactly will control the combined company – an issue that almost kept T-Mobile US and Sprint from teaming up. For another, British regulators will need to be satisfied there’ll still be enough competition to protect consumers from unfairly high prices. And they’re notoriously tough to please: Telefonica learned that the hard way in 2016, when regulators shut down its sale of O2 to rival Hutchison. | 