Vodafone, Liberty Global Merge Dutch Units to Take On KPN

  • Pact to create cost, revenue synergies of about $3.9 billion
  • Wireless, cable provider reach deal after broader talks

Wireless carrier Vodafone Group Plcand cable giant Liberty Global Plc agreed to combine their Dutch businesses, creating a provider of Internet, TV and mobile services and accelerating deal-making in Europe’s phone industry.

The 50-50 joint venture will probably result in cost and revenue synergies of about 3.5 billion euros ($3.9 billion) after integration costs, with the deal expected to be completed at about the end of the year, the companies said Tuesday. Vodafone will pay 1 billion euros in cash to Liberty Global to reflect different valuations of their local units.

The combination of Liberty’s Ziggo and Vodafone brands would create a business with more than 5 million mobile subscribers, 4 million video clients and 3 million broadband customers. Dutch market leader Royal KPN NV has thus far been the only local provider with a similar combination of services on its own network. The agreement comes more than a year after people with knowledge of the matter said Newbury, England-based Vodafone was weighing a tie-up with Liberty Global to create a phone-Internet-TV company across Europe.

“It’s very logical to combine as the market is developing toward converged offerings,” Matthijs van Leijenhorst, an analyst for Kepler Cheuvreux, said by phone. “The synergies are considerable, especially on the revenue side as Ziggo can now sell its triple-play products to Vodafone mobile customers and vice versa.”

Shares of Vodafone fell 0.3 percent to 208.85 pence at 11:44 a.m. in London. KPN rose 0.2 percent in Amsterdam. Liberty Global gained 4.5 percent to $32.83 in New York on Feb. 12.

European Deals

European carriers are merging to seek savings and add products as consumers increasingly buy TV, wireless and broadband from a single provider. BT Group Plc bought EE Ltd. this year, CK Hutchison Holdings Ltd. agreed to acquire Telefonica SA’s 02 unit in the U.K., and Orange SA is in talks to buy Bouygues Telecom in France.

Vodafone and Liberty Global merging assets in other parts of Europe would also result in synergies, though combining in markets such as Germany and the U.K. would be more complicated, Leijenhorst said. Vodafone Chief Executive Officer Vittorio Colaoplayed down prospects for a broader deal.

“There is no read-through to a wider transaction with Liberty, it is not currently under consideration,” Colao said during a call with journalists on Tuesday. Matt Beake, a U.K.-based spokesman at Liberty Global, said the agreement is only about the Netherlands and declined to comment on whether the companies plan to extend their cooperation to other countries.

The Dutch deal will require regulatory approvals and the companies will lodge a formal request to the European Commission. Under the agreement, Liberty and Vodafone will each have the right to push for an initial public offering of the venture three years after the transaction is completed.

Blending Vodafone’s mobile services with the broadband and TV businesses of Liberty Global’s Ziggo will create an integrated company “which will invest in digital infrastructure, entertainment services and productivity applications for Dutch consumer, business and public sector customers,” Colao said in a statement.

Previous Talks

The two companies confirmed earlier this month they’re in talks for a combination that would offer more customers bundled broadband and mobile services. Discussions resumed this year about possible asset swaps in Europe after the companies scrapped deliberations involving some of their biggest markets last year, people with knowledge of the matter have said.

Previous talks between the companies ended in September after the companies couldn’t agree on the value of U.K. and German operations, two of the largest markets for both, a person familiar with the matter said at the time. Billionaire John Malone, Liberty’s chairman, has said that while the companies’ assets would fit well together in Europe, philosophical differences on dividends and expansion will make a combination difficult. Liberty Global and Vodafone together have more than $80 billion in annual revenue.

Cooperation gives Vodafone an opportunity to gain pay-TV and broadband businesses as it seeks to reduce its reliance on a wireless business that has suffered from a fierce price war in Europe. For Liberty Global, a deal with Vodafone deepens a shift in strategy at a media company that until recently has shied away from owning wireless networks.

Vodafone was advised by Morgan Stanley, Robey Warshaw and UBS Group AG, while Liberty Global was assisted by Goldman Sachs Group Inc. and LionTree Advisors.

The Dutch market may face another shakeup soon. Deutsche Telekom AG is considering the sale of its Dutch operations in a move that could help the German carrier reduce debt, people familiar with the matter said in October. The asset could attract interest from suitors including private-equity firms, the people said at the time.

Separately, Liberty Global reported a 4 percent increase in fourth-quarter "rebased" revenue as it signed up more subscribers in the U.K. and Germany.

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