Liberty Global and Telefónica announce €31.4bn UK joint venture

The 50-50 joint venture, which brings together Virgin Media (owned by Liberty Global) and O2 (a Telefónica-owned brand), will invest £10 billion in the UK over the next five years.

A statement said the joint venture is expected to deliver synergies valued at £6.2 billion on a net present value basis after integration costs.

O2 is valued at  £12.7 billion and Virgin Media is valued at £18.7billion, both on a total enterprise value basis. O2 will be transferred into the joint venture on a debt-free basis, while Virgin Media will have £11.3 billion of net debt.

The statement added that both parties expect to receive net cash proceeds at closing following a series of recapitalizations that will generate £5.7 billion in proceeds for Telefonica and £1.4 billion for Liberty Global (after an equalization payment to Telefonica of £2.5 billon)

Telefonica CEO Jose Maria Alvarez-Pallete, said: “Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK, at a time when demand for connectivity has never been greater or more critical.”

 Mike Fries, CEO of Liberty Global, said, “We couldn’t be more excited about this combination. Virgin Media has redefined broadband and entertainment in the U.K. with lightning fast speeds and the most innovative video platform. And O2 is widely recognized as the most reliable and admired mobile operator in the U.K., always putting the customer first.”

The transaction will include a series of recapitalization financings prior to closing to reach its target closing net leverage ratio for the JV of 5.0x, or approximately £18 billion of long-term debt.

J.P. Morgan and LionTree Advisors are acting as financial advisers to Liberty Global. Meanwhile, Allen & Overy is acting as legal adviser to Liberty Global, with Shearman & Sterling providing US legal advice. Citigroup is acting as financial adviser to Telefonica and Clifford Chance and Herbert Smith are acting as legal adviser to Telefonica. 

The Clifford Chance team included Melissa Fogarty, Nigel Wellings, Jennifer Mbaluto, Nick Spurrell, Adam Dalton, Miguel Odriozola, Jenine Hulsmann, André Duminy, Nick Mace, Paul Deakins, Peter Dahlen, Clare Hoxey, Stephen Reese, Angela Kearns, and Rob Donell.