British telecom giant Vodafone Group (NASDAQ: VOD) is looking to acquire Liberty Global’s (NASDAQ: LBTYA, LBTYB, LBTYK) operations in Germany, the Czech Republic, Hungary and Romania for around $22 billion. Vodafone will assume EUR 7.6 billion of debt from Liberty’s German operations, UnityMedia, which is part of the acquisition. If the deal goes through, Liberty will get around $12.7 billion in cash. The transaction is expected to be completed by mid-2019.
If the deal is successful, it would create a large organization capable of offering internet, cable, wireless and landline phone services under a single umbrella. The transaction does not include the Denver, Colorado-based Liberty’s U.K. and Ireland operations.
This transaction would give Vodafone the teeth to go up against Deutsche Telekom in Germany, where the latter enjoys a dominant position. Even though the combined entity would only be half the size of Deutsche Telekom, the deal has not gone down well with the Germany-based telecom giant. It’s worth noting that in last December, Deutsche Telekom had agreed to acquire Liberty Global’s Austrian unit UPC for $2.2 billion.
If the deal doesn’t take place, in certain circumstances, Vodafone will pay a breakup fee of EUR 250 million
Deutsche Telekom has expressed its objections to the deal stating concerns over how it would affect the competitive landscape in Germany. Vodafone has dismissed these remarks by saying Deutsche simply wanted to remain in the number one position.
Although there are questions being raised over the possibility of obtaining regulatory approval, Vodafone remains optimistic that the deal will make it through. Vodafone does not believe the deal will affect competition and the size of the combined company too would not be an issue. The British telecom company believes that the transaction will benefit customers in terms of faster and better service especially as the advent of 5G gets closer.
Vodafone expects to generate annual cost savings of over $600 million by the fifth year post the deal closure. Revenue synergies are estimated to total more than $1.8 billion. If the deal doesn’t take place, in certain circumstances, Vodafone will pay a breakup fee of EUR 250 million.