Telecoms titans O2 and Virgin Media tie the knot

O2 and Virgin Media are set to merge and create a new company worth £31bn. What does this mean for the industry? Matthew Partridge reports

Virgin Media employee © Universal Images Group via Getty
A Virgin/O2 tie up could benefit shareholders © Getty
(Image credit: Virgin Media employee © Universal Images Group via Getty)

Telefonica and Liberty Global have agreed an “industry-defining deal”, say Rodrigo Orihuela and Thomas Seal on Bloomberg. They are creating Britain’s largest phone and internet operator by merging Telefonica’s 02 and Liberty’s Virgin Media to create a new company valued at £31bn. Both companies will have equal stakes in the venture, will name half of the board of directors, and can also appoint the firm’s chairman on a rotating two-year basis. Liberty will pay Telefonica a total of £8.2bn to reflect the difference in the current size of both companies.

The joint venture between Liberty, owner of Virgin Media, and O2 parent Telefonica may seem like an “odd pairing” given that Liberty is run by an “anti-establishment financial innovator” while Telefonica “sits at the centre of Spain’s corporate establishment”, says Christopher Williams in The Daily Telegraph. Still, the immediate cash payment will help Telefonica reduce its large debts, while both sides will benefit from the fact that the promised £540m in cost savings “should be readily achievable”. In the longer term, the new company should be well placed to benefit from the industry-wide trend toward converged services that “blend mobile and broadband”.

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri