Liberty Global, Telefonica agree $38 billion merger of UK businesses

(Reuters) – The British businesses of Liberty Global Plc (LBTYA.O) and Telefonica SA (TEF.MC) will merge to create a major new player in UK mobile and broadband communications in a deal valued at around 31 billion pounds ($38 billion) including debt.

The parent companies, which expect to achieve 6.2 billion pounds of synergies on an annual basis by the fifth full year after closing, will have equal ownership of the combined entity, they said on Thursday.

The joint venture will invest 10 billion pounds in the UK market over the next five years.

The companies said the deal would value Telefonica’s O2 at 12.7 billion pounds and Liberty’s Virgin Media at 18.7 billion pounds, both on a total enterprise value basis, including debt.

“O2 to be transferred into the joint venture on a debt-free basis, while Virgin Media to be contributed with 11.3 billion pounds of net debt and debt-like items,” the companies said in a joint statement.

Both parties expect to receive net cash proceeds at closing following a series of recapitalisations that will generate 5.7 billion pounds in proceeds for Telefonica and 1.4 billion pounds for Liberty, they said.

The deal will allow Telefonica to squeeze cash from O2 and keep a presence in Britain, while Virgin will gain access to its own wireless network, saving the money it has spent until now on leasing capacity for its mobile operations.