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Will Dutch Regulator Assess The Vodafone-Liberty Global JV?

Published 07/07/2016, 08:46 AM
Updated 07/09/2023, 06:31 AM
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According to a recent report by Reuters, Dutch market regulator, Authority for Consumers and Markets (ACM) has approached the European Union (EU) Commission for permission to evaluate the merger between Liberty Global Plc.'s (NASDAQ:LBTYA) Dutch cable company Ziggo and Vodafone Group (LON:VOD) Plc.'s (NASDAQ:VOD) Dutch operations.

The Deal

In Feb 2016, British telecom giant Vodafone and the largest cable MSO (multi service operator) in Europe,Liberty Global decided to merge their Dutch operations to form a 50-50 joint venture (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 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 companies had been negotiating over a series of transactions including global asset swaps. However, the merger negotiations were abandoned after the companies failed to reach an agreement on valuations. At the moment, Vodafone and Liberty Global are combining their Dutch businesses. However, the companies have refused to comment on the possibility of the deal being extended to other markets in the future.

EU Review

The European Union Competition Commission (EC) is expected to announce its decision on the proposed JV between Vodafone and Liberty Globalin the Netherlands on July 19, 2016. However, this deadline is provisional and can be extended if the regulatory authority wants to extensively investigate the potential impact of the venture on the competitiveness in the market. In the event of the deal materializing, the combined Vodafone-Liberty Global entity will pose formidable challenge to key players like Royal KPN NV (OTC:KKPNY) and T-Mobile Netherlands of Deutsch Telekom in the country.

The Bottom Line

In 2015, U.K.’s market regulator, the Competition and Markets Authority (CMA) made a similar request related to the proposed merger of Telefonica (MC:TEF) SA’s O2 (NYSE:TEF) and 3UK but was denied permission. The reason behind the refusal was EU’s stance that it is better placed to ensure the consistent application of merger control rules. Thus, the question that looms large is whether EU will make the same decision for Vodafone and Ziggo.

Notably, the EU commission expects ACM to announce its decision by early August.

Zacks Rank and Stock to Consider

Currently Vodafone carries a Zacks Rank #2 (Buy) and Liberty Global carries a Zacks Rank #4 (Sell). Investors interested in the same sector can consider better-ranked stock such as NTT DoCoMo Inc. (NYSE:DCM) with a Zacks Rank #1 (Strong Buy).

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TELEFONICA S.A. (TEF): Free Stock Analysis Report

LIBERTY GLBL-A (LBTYA): Free Stock Analysis Report

NTT DOCOMO -ADR (DCM): Free Stock Analysis Report

VODAFONE GP PLC (VOD): Free Stock Analysis Report

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