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Liberty Global's (LBTYA) JV With Telefonica Gets U.K. Approval

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Liberty Global (LBTYA - Free Report) and Telefonica’s 50:50 joint venture to combine Virgin Media and O2 received approval from the U.K.’s Competition & Markets Authority or CMA on May 20. The transaction is now expected to be completed by Jun 1, 2021.

Liberty Global and Telefonica announced the joint venture in May, 2020. The deal valued Virgin Media at £18.7 billion (including £11.3 billion of debt) and O2 at £12.7 billion.

The deal that combines Virgin Media and O2, the U.K.’s fastest broadband network and leading mobile operator, respectively, is expected to generate £11 billion in revenues and synergies worth £6.2 billion on a net present value basis after integration costs. Moreover, OCF and OFCF are expected to be $3.70 billion and $1.57 billion, respectively.

Markedly, in April, Liberty Global and Telefonica appointed Lutz Schüler as chief executive officer and Patricia Cobian as chief financial officer of the combined company, upon completion of the deal.

The transaction bodes well for Liberty Global as the combined company will create a strong U.K.-focused fixed and mobile player. Markedly, Liberty Global’s Fixed-mobile convergence (“FMC”) strategy continues to drive mobile growth with blended FMC penetration increasing at VirginMedia and UPC Switzerland.

 

FMC penetration increased to 29% in the first quarter, up from 23% in the year-ago quarter. Liberty Global gained 38,000 customer relationships in the first quarter against a loss of 18,900 in the year-ago quarter.

Meanwhile, in the United Kingdom/Ireland, Virgin Media gained 31,000 customer relationships against a loss of 1,000 in the year-ago quarter. The company benefited from strong demand for broadband bundles. Liberty added 24,000 customers in its Lightning footprint and 7,000 in the BAU footprint.

Moreover, Liberty Global is benefiting from the acquisition of Sunrise Communications in Switzerland. In first quarter, Sunrise added 4,000 customers.

Nevertheless, Liberty Global is suffering from a persistent customer loss in the video and voice segment, primarily due to stiff competition in the broadband, fixed-line telephony and mobile services segments.

Zacks Rank & Stocks to Consider

Liberty Global currently has a Zacks Rank #3 (Hold).

Gray Television (GTN - Free Report) , TEGNA (TGNA - Free Report) and Leggett & Platt (LEG - Free Report) are better-ranked stocks in the broader consumer discretionary sector. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Gray Television, TEGNA and Leggett & Platt is pegged at 10%.

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