Telefonica confirms talks to merge Britain’s O2 and Virgin Media

MADRID (Reuters) – Spain’s Telefonica SA (TEF.MC) confirmed on Monday it has opened talks with billionaire John Malone’s Liberty Global Plc (LBTYA.O) over a possible merger of the two companies’ businesses in Britain.

The talks to merge Telefonica’s British mobile operator O2 and Liberty’s Virgin Media network company have just started, the Spanish company said.

“The process started between both parties is in the negotiation phase, with no guarantee, at this point, of its precise terms or its probability of success,” Telefonica said in a filing to the Spanish market regulator.

Two sources familiar with the matter told Reuters on Friday that talks were ongoing.

In a two-paragraph statement on Monday, Telefonica said it would keep markets informed if a “satisfactory agreement” were reached.

Telefonica’s UK business, which includes O2, generated 7.11 billion euros in revenue in 2019, around 14.7{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the group’s total, and had 34.5 mobile connections on its network.

Virgin Media competes with UK pay-TV market leader Sky, owned by Comcast (CMCSA.O), in pay-TV, and with BT (BT.L), Sky, TalkTalk and others in broadband.

It had 6 million cable customers and 3.3 million mobile customers as of the end of 2019.

Telefonica, due to report quarterly earnings on Thursday, has been weighing options for the mobile business since 2016 when a previous 10.3 billion pound ($12.8 billion) O2 takeover bid from Three UK, controlled by CK Hutchison Holdings (0001.HK), was blocked by European antitrust regulators.

A combination of O2 and Virgin Media would reshape Britain’s telecoms industry, leaving Hutchison and Vodafone (VOD.L) without their own fixed-line consumer networks and raising the pressure on BT.

A deal between Telefonica and Liberty would end uncertainty around the fate of one Britain’s biggest mobile operators after it was repeatedly touted as a possible candidate for a sale or a stock listing in recent years.

It would also offer Telefonica a way to partially cash out from O2 while retaining a presence in Britain, which the company sees as one of its core markets along with Spain, Germany and Brazil.

The Spanish company has said last year it plans to raise 2 billion euros ($2.2 billion) in extra revenue by hiving off parts of its Latin American businesses and focusing on its core markets.