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Liberty Sells Vodafone Multiple European Cable Assets in $22.7 Billion Deal

Liberty Global and Vodafone have finalized their long-expected deal for a range of cable operations in Europe. Telco Vodafone will fork out $22.7 billion for Liberty’s cable operations in Germany, Hungary, Romania and the Czech Republic.

The four Central and Eastern European units accounted for 28% of Liberty’s 2017 cash flow, which does not include its 50% of operating cash flow from its Dutch joint venture VodafoneZiggo, and will give Vodafone several major European operations. In Europe, John Malone’s Liberty is left with cable TV, telephony, and Internet businesses in the U.K. and Ireland, where it operates Virgin Media, as well as in Belgium, Switzerland, Poland and Slovakia and will remain Europe’s leading cable television and broadband provider reaching 24 million homes across these remaining markets.

“We have a rich history at Liberty Global of successfully developing and reshaping our business to drive innovation, advance customer services and create significant value for shareholders,” Mike Fries, CEO of Liberty Global, said. “This is one of those moments.”

Fries said the transaction would deliver $12.7 billion of estimated cash proceeds to Liberty Global while also proving “important and exciting” for cutomers. “In each of these markets, the combination of Liberty Global and Vodafone’s businesses will transform the competitive landscape and bring a new level of convergence to customers. 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 cited Germany as a market in need of greater competition, suggesting that the dominance of one provider, Deutsche Telekom, which controls more than half the market, resulted in a lag in innovation and investment compared to other countries in Europe. Although he admitted that, even combined, Liberty and Vodafone would be half the size of Deutsche Telekom he issued a challenge, saying: “It’s time to alter the market dynamics by unleashing greater investment and competition.”

But Paolo Pescatore of analytical firm CCS Insight said the move was unlikely to prove a game changer, with the pre-existing joint venture in the Netherlands already laying out a blueprint for the companies to move closer together. “Both companies are struggling to grow in a rapidly converging world,” said Pescatore, CCS Insight’s vice president of multiplay and media. “If anything, it reinforces the importance of owning both fixed and mobile networks on the road towards 5G.

“For Vodafone, the acquisition of selected Liberty Global assets is a strategically sound approach to strengthen its position,” Pescatore added. “Convergence is one of Vodafone’s strategic pillars.” He suggested that Liberty was expected to use the funds from the sale “to strengthen its position in other markets such as the U.K.”

The deal is subject to regulatory approval by the European Commission, which Liberty Global expects to be granted in mid-2019. However, Pescatore, noting that Vodafone would become “a powerful rival to Deutsche Telekom in bundled services,” believes regulators will “block or restrict the deal,” resulting in a cut to the number of companies in both the fixed-line and TV markets, where both Vodafone and Liberty Global have “a relatively solid presence.”

Vodafone and Liberty confirmed that talks about a sale were underway in February this year after having previously tried, and failed, in 2015 to agree on a deal that would have seen them swap various assets. Vodafone will add the Liberty assets to a growing European portfolio after also acquiring Kabel Deutschland in Germany in 2013 and Spanish cabler Ono in 2014. It will acquire the German business inclusive of its debt.

Liberty said it would provide transitional networking and IT services to Vodafone for four years for an annual fee. It will treat both the assets sold to Vodafone and its Austrian business, which is being sold to Deutsche Telekom, as discontinued operations for accounting purposes from the second quarter reporting for this year.

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