Liberty Global (NASDAQ:LBTYA) (NASDAQ:LBTYB) (NASDAQ:LBTYK) is a European broadband and telecom company controlled by John Malone. The performance of the share price has been bad, but under the hood a lot has changed in recent years. In this article, I will analyse the new competitive situation and the potential opportunity for current and new investors in Liberty Global.
Recent Merger and Acquisition activity
With the sale of the German and most East European activities to Vodafone (VOD) for $21.3B and the Austrian activities to Deutsche Telekom (OTCQX:DTEGF) for $2.2B it seemed that Liberty Global was retreating from Europa. This feeling was strengthened by the negotiations of Selling the Swiss activities to Sunrise Communications (OTCPK:SNMMF) and the new Joint Venture deal with Telefonica (TEF) in the United Kingdom.
UK merger
In the deal Telefonica will bring in its Mobile carrier O2 debt free at valuation of £ 12.7B. O2 is second carrier in the UK after EE (the merged Orange (ORAN) and Deutsche Telekom activities owned by British Telecom (BTGOF)).
Liberty Global provides its most valuable asset with Virgin Media for £18.7B. To still get a 50-50 JV Liberty Global contributes Virgin Media with £11.3B in net debt. Telefonica is getting £5.7B in proceeds, while Liberty Global is netting an additional £1.4B.
Given that this transaction is not costing shareholders anything, the transaction was generally viewed somewhat favorably. Liberty Global is losing 50% of its prime asset, but O2 is a strong carrier and the combination creates a strong number 2 behind British Telecom.
In general, I have a more favorable view on broadband than mobile assets, but this difference was also somewhat reflected in the higher valuation of the Virgin Media assets.
With 4 mobile carriers there still is strong competition, but at least the converged offering will somewhat shield the
