Telecommunications giant Telefónica confirmed on Monday it is in talks with Liberty Global PLC (NASDAQ:LBTYA) to merge their British arms, O2 and Virgin Media.
The Spanish firm said in a statement they are still at the negotiation phase and it cannot guarantee whether the transaction will go through.
Virgin Media provides broadband to 15mln homes, 45,000 businesses and has 3mln mobile customers, while O2 has 23mln mobile customers. According to media reports, it would be a 50/50 joint venture.
Telefónica has been considering options for O2 since 2016, when European antitrust regulators blocked a £10bn takeover by Three UK, The New York Times reported.
Analysts at Deutsche Bank said the deal should meet limited obstacles by the regulator.
“The transaction would resolve both companies’ long-term strategies for fixed-mobile convergence and provide an increased customer base for Virgin Media to cross-sell its broadband and TV services, potentially ahead of a push by Virgin Media into fixed retail and infrastructure deployment in the 50% of the UK which is not covered by Virgin Media’s network today,” they added.
“For BT, a stronger competitor could be seen as negative but we see the pension deficit /infrastructure competition for Openreach as bigger issues,” UBS commented.
The O2/Virgin Media merger could be an opportunity cost to Vodafone PLC (LON:VOD), which was due to host Virgin Media’s 5G programme from the end of 2021.
Shares in Liberty jumped 15% to US$22.29 in after hours trading.
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