Finally consummating a deal that’s been discussed for years, Liberty Global has confirmed that it will sell its cable businesses in Germany, the Czech Republic, Hungary and Romania to wireless giant Vodafone in a deal valued at $22.7 billion.
The two companies had been in talks since February, though speculation about a deal dates back to as early as 2013.
Liberty Global said the divested assets represent about 28% of its consolidated 2017 operating cash flow.
Pending approval by European Commission regulators, the deal is projected to close in mid-2019.
When it’s done, Liberty Global will still be Europe’s largest cable TV and broadband service provider, with operations remaining in the U.K., Ireland, Belgium, Switzerland, Poland and Slovakia. Together, these cable systems reach have 26 million video, broadband and wireline telephone subscribers, as well as 6 million mobile customers.
The deal is in line with a global trend of wireless companies acquiring cable systems and taps into their high-speed networks’s ability to quickly transmit data to cellular towers for 5G.
In each of the four markets affected by the sale, Liberty Global CEO Mike Fries said, “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.
“Germany, for example, is dominated by one provider that controls over half the broadband market,” Fries added. “As a result, innovation and investment lag other countries in Europe, impacting customer service, next-generation product deployment and broadband speeds. Even together, Liberty Global and Vodafone, whose cable networks don’t 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.”
Jefferies analyst Ulrich Rathe called the deal “accretive” for Liberty Global, but expressed regulatory concerns.
“We have repeatedly written about the regulatory issues surrounding cable consolidation in Germany,” Rathe said in a note to investors this morning. “In particular, we have highlighted the German Federal Cartel Office's (FCO) well-established track record of concerns over the adverse impact of cable consolidation on upstream markets (broadcasters) and downstream ones (in particular the collective agreements with MDU landlords). Even if this transaction is structured to trigger an EC-level review, it remains to be seen how much support the FCO will receive from the German government with its (we think almost certain) appeal to the EC for a material say in the regulatory review.”