Vodafone has struck an €18.4bn (£16bn) deal to buy Liberty Global’s cable TV and broadband businesses in Germany and eastern Europe.
The deal for the Virgin Media owner, which has been the subject of on-off talks for several years, will transform Vodafone from a mobile phone operator into a cable and broadband TV giant across the continent.
“This transaction will create the first truly converged pan-European champion of competition,” said Vittorio Colao, chief executive of Vodafone Group. “It represents a step change in Europe’s transition to a gigabit society [next generation broadband]. Vodafone will become Europe’s leading next generation network owner, serving the largest number of mobile customers and households across the European Union.”
After Vodafone completes the takeover – which includes Liberty Global’s operations in the Czech Republic, Hungary and Romania, it will have 54 million cable TV and broadband customers across Europe. Sky, which operates in the UK, Ireland, Germany, Austria and Italy, has 23 million.
The deal excludes Liberty Global’s joint venture with Vodafone in the Netherlands, VodafoneZiggo, and Virgin Media in the UK.
The sale will leave John Malone, who controls Liberty Global through voting shares, with almost €11bn in cash to inject into its remaining businesses. The deal could spark speculation that he may once again consider buying ITV, in which Liberty Global has a 9.9% stake. The company has repeatedly said ITV, which has a market value of £6bn, is overpriced as a takeover target.
The potential benefits of a tie-up of the UK’s biggest cable operator with the largest commercial, free-to-air broadcaster was spotted more than a decade ago when NTL Telewest – before a rebrand to Virgin Media – held merger talks.
It was James Murdoch, then chief executive of Sky, who, after identifying the threat the combination could make, thwarted the move by swooping to buy a 17.9% stake for almost £1bn.
“The use of proceeds from the sale will be determined in due course and are expected to provide significant additional flexibility to optimise growth and shareholder returns,” Liberty Global said.
Mike Fries, the chief executive of Liberty Global, said the deal was necessary as in some markets such as Germany, which is dominated by Deutsche Telekom, there is a lack of competition.
“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.
“Germany, for example, is dominated by one provider that controls over half the broadband market. Even together, Liberty Global and Vodafone, whose cable networks do not compete or overlap, will be half the size of the incumbent operator. It’s time to alter market dynamics by unleashing greater investment and competition.”
A break fee of €250m will be payable by Vodafone, in certain circumstances, if the deal does not complete.