UK Gives Provisional Green Light to Merger of O2 and Virgin, Key for Pallete | Companies

Relief for Telefónica in the UK. The British competition authority, the CMA, has given a provisional green light to the merger of O2, the British subsidiary of the Spanish company, with Virgin Media, owned by the American LIberty Global. The operation is valued at 35,800 million and will create a telecommunications giant in the country, which with 46 million lines, between mobile, fixed broadband and television, seeks to threaten the historical leadership of BT. For this reason, the authorization of competition is key.

“A thorough analysis of the evidence gathered during our investigation has shown that the agreement is unlikely to lead to an increase in prices or a reduction in the quality of mobile services, which means that customers should continue to benefit from strong competition.” , has indicated the CMA. The competition authority, in this case the European Commission, has already thwarted a key operation of Telefónica O2, its sale to Hutchison in the spring of 2016.

Like the former, the integration of O2 and Virgin is key to the plans of the Spanish company and its president, José María Álvarez Pallete, in reducing debt. With the operation, teleco foresees a debt reduction of between 6,300 and 6,652 million euros, and an initial payment of 6,500 million euros. At the end of 2020, Telefónica’s debt was around 35,000 million, although the teleco pointed out that, with the pending operations, the merger of O2 and Virgin, and the sales of Movistar Costa Rica and the Telxius towers to American Tower, indebtedness would be around 26,000 million.

The operation was announced in May last year, in the midst of the pandemic, and a few months later the United Kingdom asked Brussels for the operation’s file, in view of its characteristics and the end of the post-Brexit transition process.

The CMA has indicated that its analysis has not focused on possible duplications in the retail markets, without considering whether the operation may reduce competition in the wholesale market, that is, in the rental of services to third-party operators.

Virgin rents lines to operators such as Vodafone or Three to complete its own networks, while O2 rents its network to alternative mobile operators. The CMA feared a price hike in these areas, but has provisionally ruled out this possibility, indicating that customers should continue to benefit from strong competition.

The final approval could take place during the month of May, according to industry sources, who point out that it is highly unlikely that the CMA could change the direction of its decisions. From the outset, Telefónica’s management has demanded approval without conditions, recalling that, in 2015, the United Kingdom gave the green light to a very similar transaction, the purchase of Everything Everywhere by BT, also without setting conditions.

Both partners have worked with that conviction. In fact, already in the second half of 2020, they completed the recapitalization of the joint venture, with the raising of more than 6,100 million euros between credits and bonds. Last week, Telefónica and Liberty announced the management structure of O2 Virgin Media. Thus, Lutz Schüler, from Virgin will be the CEO of the new operator, while Patricia Cobián, financial director of O2, will occupy the same position in the joint venture.

In addition, Liberty Global has accelerated in recent weeks the segregation of Virgin Media’s business in Ireland, which was not part of the agreement with Telefónica.

Telefónica and Liberty have argued that the merger combines the mobile strength of O2, with an ambitious 5G deployment, and the weight of Virgin Media in fixed broadband. One of the promises of both partners is the acceleration of the deployments of the next generation infrastructures, both mobile 5G and fiber. In this case, the Spanish group has highlighted that it will contribute its experience in the deployment in markets such as Spain and Brazil.

Telefónica shares started the session with slight decreases, amid the doubts that surround the markets. In the first minutes of trading, they are left around 0.7%, up to 3.71 euros. Various analysts have agreed that the approval of the merger of O2 and Virgin Media should be a catalyst for the recovery of the matildes.


Brussels is inhibited and leaves the merger of Telefónica and Liberty in the hands of London

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The European Comission has decided this Thursday to inhibit and send to London the examination of the merger between the businesses of Telefónica (O2) and Liberty (Virgin) in the UK. As Invertia advanced, Brussels considers that the new Authority for Consumers and the Market UK (CMA) is well positioned to assess the impact of concentration on competition, since it only affects the British market after the Brexi.

The merger proposal was notified to Brussels by Telefónica and Liberty Global on September 30, and the CMA asked the Community Executive to take up the case on October 8. London alleges that the operation raises competition concerns in various telecommunications markets in the United Kingdom: specifically, in mobile services markets retail and wholesale and on the line leasing market.

Furthermore, the CMA argued in its request to the Commission that it would be in a good position to examine this transaction given that will be completed once the transition period of the Brexi and that the United Kingdom definitely leaves the single market and the customs union.

The evidence gathered by the Community Executive confirms that the operation “may affect competition in the telecommunications sector in the United Kingdom, where Telefónica and Liberty Global are currently two large operators of the market, “as reported in a statement.

The Commission has therefore decided to refer the case to London, which will deal with the matter under UK national law. As a result of the close cooperation between the CMA and the Community Executive throughout the procedure, the CMA already has all the data on this matter and the investigation will continue without interruption.

On May 7, Telefónica announced that it had reached an agreement with Liberty Global to form a joint venture 50% owned by both companies that will give rise to a telecommunications provider with more than 46 million customers and revenues of approximately 12,500 million euros.

The combination of both companies will lead to a integrated provider of fixed and mobile services stronger in the UK market, which will drive Virgin Media’s high-speed network expansion and O2’s 5G network rollout.

The transaction values ​​O2 at € 14.5 billion and Virgin Media at € 21.3 billion, both in terms of total company value. O2 will contribute a company free of debt, while Virgin Media will contribute its assets and 12.9 billion of net debt.


The United Kingdom claims Brussels the investigation of the merger of Telefónica O2 and Virgin | Companies

The British competition authority, the Competition and Markets Authority (CMA), has asked the European Commission to transfer to the United Kingdom the investigation and the final decision on the merger of O2 and Virgin Media, British subsidiaries of Telefónica and Liberty Global, respectively.

In a statement, the CMA recalls that Telefónica and Liberty notified their plans for the operation to the European Commission on September 30. Brussels gave until November 5 to make a decision.

The British authority believes that in this case, the file should be transferred to the United Kingdom because the potential impact on competition will only be in some retail and wholesale telecommunications markets in the country itself.

Furthermore, the CMA warns that, although Brussels has had a strong interest in the past to ensure consistency in various mergers in the telecommunications sector, now the Community position is no longer relevant given the imminent end of the transition period for the exit of the United Kingdom from the European Union.

The CMA indicates that the initial limit for Brussels to respond to this requirement is on November 19, 2020. The British competition regulator states that it has been in close contact with the European Commission in its investigation to date and will continue to do so in should Brussels decide that jurisdiction over the case should not be transferred.

In principle, the fact that it is the British authorities instead of Brussels who investigate the operations, would be more favorable for obtaining the go-ahead. Last May, in the announcement of the merger, José María Álvarez-Pallete, president of Telefónica, defended that the operation will not affect competition, recalling that another very similar operation, the purchase of Everything Everywhere by BT in 2015, which involved the integration of a mobile operator with a fixed broadband telecom, was approved by the British authorities with hardly any conditions.

A resolution that contrasted with the decision of the European Commission in 2016 to block the sale of the aforementioned O2 to Hutchison Three because it meant reducing the number of mobile network operators from four to three, affecting British users. This community decision, which penalized Telefónica’s debt reduction plans, came just weeks before the Brexit referendum, where UK voters voted in favor of leaving the European Union.

The official request of the CMA has done well for Telefónica on the Stock Market. Its shares rise more than 3% after noon, to 3.24 euros, and maintain the rebound of the last days, after having lost the level of three euros last week.

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