Vodafone challenges Deutsche Telekom with $21.8 billion Liberty deal

Vodafone has agreed to pay $21.8 billion to buy Liberty Global`s assets in Germany and eastern Europe to take the fight to rivals with a broader range of superfast cable TV, broadband and mobile services. The world`s second-largest mobile operator struck a deal with U.S. cable pioneer John Malone`s Liberty after years of on-off talks to become a European force to challenge the dominance of former monopolies such as Deutsche Telekom. 

The German provider swiftly emphasised its previously stated opposition to the deal and Vodafone is likely to face a lengthy regulatory review in Brussels. Deutsche Telekom is set to argue that the deal should at the very least lead to an easing of the regulations it faces in its home market.The deal puts Vodafone back on the front foot in its European heartlands, where it is battling to be one of the few players with the scale to provide the full range of entertainment and communications services that consumers want.

"In Europe, Vodafone started historically as the challenger in mobile across all markets, over time we built a presence in fixed and now with this transaction we become the largest provider of mobile-fixed converged services across all European countries," Vodafone Chief Executive Vittorio Colao told reporters.

He said the logic of putting together mobile and fixed assets had strengthened in markets like Germany, pushing a deal between the two companies over the line.

"This transaction will create the first truly converged pan-European champion of competition," he said. 

"It is also a transformative combination for Vodafone, we will become the leading next-generation network owner in Europe, serving the largest number of mobile customers and households across the EU."

The companies have pencilled in a mid-2019 completion date for a combination that also includes the Czech Republic, Hungary and Romania.

Vodafone`s shares were trading up 1.2 percent at 210 pence at 1155 GMT.

REGULATORY BATTLE
The deal, Colao said, would not reduce choice because there was no overlap between Vodafone`s existing Kabel Deutschland cable network and Liberty`s Unity Media.

Setting out Vodafone`s likely pitch to regulators, he said the deal would benefit consumers and governments wanting faster digital infrastructure.

Deutsche Telekom, Europe`s largest telecoms firm, argues that the deal will distort competition in Germany.

The acquisition would create "a giant preening with its convergent technology", DT`s CEO Tim Hoettges said.

"I personally will fight for fair competition for our customers, to ensure that we do not face a disadvantage," he said on a results conference call. [nL8N1SG2QD]

Colao, who has publicly clashed with the Deutsche Telekom CEO over the deal, said he was amused by Hoettges` "self serving" remarks.

"He wants to keep his dominance as a single nationwide player," he said. "Bad news for him; now there will be a second nationwide player."

Liberty Chief Executive Mike Fries said he was confident it would be passed, adding that even when combined, Vodafone and Liberty would be half the size of Deutsche. 

Under the deal, the British company will give Liberty $12.7 billion in cash and take on the associated debt to create a European network covering 54 million homes. 

UBS analysts said the price appeared to be at the lower end of investor expectations and there was also likely to be relief at the absence of significant equity issuance to fund the deal, which has been an overhang on the shares in recent months.

BIG DEAL FOR VODAFONE
The move marks Vodafone`s biggest deal since it exited the United States in 2014.

Liberty will remain in Britain, Ireland, Switzerland, Belgium, Poland and Slovakia.

Analysts have speculated that the two companies could do a similar deal in Britain, where Liberty own cable group Virgin Media, but Colao said that was not on the agenda.

"Virgin is not on the agenda for the time being," he said. "We are very happy with the current solution of both reselling BT`s lines and working with CityFibre."

Vodafone said combining the companies` operations would generate cost savings of about $632.80 million a year before integration costs by the fifth year after the deal completes.

It will target revenue synergies of more than $1.8 billion by cross-selling multiple services to the combined customer base.

A break fee of 250 million euros will be payable to the British company, in certain circumstances, if the deal does not complete. 

The two companies, which already have a joint venture in the Netherlands which is excluded from the deal, restarted talks in February.