Vodafone And Liberty Global Dutch JV Awaits EC Go-Ahead

The European Union Competition Commission (EC) has decided to take a decision on the proposed joint venture (JV) between Vodafone Group (LON:VOD) Plc. (NASDAQ:VOD) and Liberty Global Plc. (NASDAQ:LBTYA) in the Netherlands on Jul 19, 2016. However, this deadline is provisional and can be extended if the regulatory authority wants to extensively investigate the potential impact of this JV on the competitiveness of the Netherlands market.

In Feb 2016, British telecom giant Vodafone and Liberty Global - the largest cable MSO (multi service operator) in Europe – decided to merge their Dutch operations to form a 50-50 JV. As per the agreement, Vodafone will pay €1 billion (approximately $1.12 billion) in cash to Liberty Global to bring the valuation of each of their local units on par. The two companies are expecting to achieve cost and revenue synergies of €3.5 billion (around $3.9 billion) after factoring in integration costs. The deal is expected to close by end-2016, subject to regulatory approval.

Notably, last year, the two companies had been negotiating on a series of transactions including global asset swaps. However, the merger negotiations were abandoned after the two companies failed to reach an agreement on valuations. At the moment, Vodafone and Liberty Global are combining their Dutch businesses. Both the companies have declined to comment whether there is a possibility of the deal being extended to other markets in the future.

Vodafone has a nationwide 4G LTE network in the Netherlands serving around 5.13 million mobile and about 73,000 fixed broadband subscribers. Meanwhile, Liberty Global, through its Ziggo subsidiary, serves approximately 4.1 million pay-TV subscribers in the country. Of the total, nearly 3.1 million customers also use Ziggo’s broadband service while 2.5 million customers use its voice service.

It is worth mentioning here that Ziggo already has an MVNO (mobile virtual network operator) agreement with Vodafone Netherlands. At present, Ziggo serves around 181,000 mobile customers in the country using Vodafone’s wireless network. In the event of the deal materializing, the combined Vodafone-Liberty Global entity will pose a formidable challenge to key players like Royal KPN NV (OTC:KKPNY) and T-Mobile Netherlands of Deutsch Telekom in the country.

Liberty Global is a leading cable MSO with presence in 12 European countries. Besides its triple-play (video, voice and fixed line broadband) services, the company now also offers mobile services. Apart from Ziggo in the Netherlands, Liberty Global offers wireless service in the UK post its Virgin Media acquisition. The company received the European Union regulatory nod to take over Belgian wireless operator BASE N.V. from Royal KPN N.V.

Vodafone, on the other hand, is a global telecom operator offering wireless and wireline services). The company recently diversified its operations in the cable-TV space after the acquisitions of Kabel Deutschland in Germany and ONO in Spain. Therefore a combination of Vodafone and Liberty Global can offer quad-play wireless, wireline, voice and video services.

Zacks Rank & Other Stocks

Currently, Vodafone carries a Zacks Rank #3 (Hold) while Liberty Global has a Zacks Rank #4 (Sell). A couple of better-ranked stocks are NTT DoCoMo Inc. (NYSE:DCM) and Cablevision Systems Corp. (NYSE:CVC) , both sporting a Zacks Rank #1 (Strong Buy).