Monday 4 May 2020 8:12 am

Telefonica confirms talks to merge O2 with Virgin Media

O2’s Spanish parent company has confirmed reports that it is in discussions with Liberty Global over a potential merger with Virgin Media.

Telefonica this morning said it has just begun talks with Virgin Media owner Liberty, which is led by telecoms billionaire John Malone, over a tie-up between the British mobile operator and cable company.

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

A deal would bring together O2’s 34m customers on its mobile network — the largest in the UK — with Virgin’s 5.3m broadband, pay-TV and mobile users.

The talks are focused on creating a joint venture equally owned by the two companies, a source with knowledge of the matter told Reuters.

Telefonica has been examining options for O2 since 2016, when a planned takeover by Three owner CK Hutchison was blocked by European competition regulators.

The Spanish telecoms giant then considered a £10bn stock market listing for its British division, but abandoned the plans amid concerns about Brexit.

Telefonica’s overriding goal to reduce its debt load – which stood at €37.74bn (£33.5bn) at the end of last year – would likely shape the deal, Jefferies analysts wrote in a note after Bloomberg first reported news of the talks.

Liberty Global has also been looking to offload its European operations, selling its cable networks in Germany and central Europe to Vodafone in a $22bn (£17.6bn) deal which was finalised last year.

Liberty also combined its Dutch operations with Vodafone’s in 2016 in a joint venture deal that could offer the blueprint for a merger of O2 and Virgin Media.

The tie-up talks will also raise questions about the fate of ITV, which has suffered a sharp fall in its share price amid an advertising slump and production shutdown.

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Liberty built a 10 per cent stake in the public service broadcaster in 2015 and has fuelled speculation about a full takeover bid ever since.

If the merger is successful, the new company would provide a fresh rival to Comcast-owned Sky in the pay-TV market, as well as BT in the broadband sector.