Vodafone and Liberty Global agreed to merge their Dutch operations in a move that will provide greater competition in the area of converged services for rival KPN while further isolating T-Mobile Netherlands as a mobile-only player.
The mobile operator and cable giant said they planned to create a 50-50 joint venture that would combine Ziggo's cable broadband network with Vodafone Netherlands' mobile business. The new venture will have 4.2 million video clients; 3.2 million broadband customers; 2.6 million fixed-line telephony clients; and 5.3 million mobile subscribers.
The announcement comes only two weeks after the two companies said they were in talks over a possible combination of their respective Dutch assets.
As part of the deal, Vodafone will make a cash payment of €1 billion ($1.1 billion) to Liberty Global to balance out their respective shares in the joint venture. Annual savings are expected to be €280 million per year from the fifth year after closing, which is targeted for the end of 2016 subject to regulatory approval by the European Commission. Total cost and revenue synergies have been estimated at about €3.5 billion after integration costs.
Both the Ziggo and Vodafone brands will be retained under the joint venture, which will place a strong focus on cross-selling Ziggo's triple-play offers of fixed TV, broadband and voice services with Vodafone's mobile services. Vodafone NL also currently sells a triple-play plan under Vodafone Thuis and a quad-play offering under Vodafone Power-up, and it is not yet clear what will happen to these plans under the future arrangement.
Vodafone Group CEO Vittorio Colao stressed that the merger would create a strong and competitive integrated communications player on the Dutch market.
"Together we will be a stronger competitor in the Netherlands, benefiting customers of both companies and the market as a whole. This transaction marks a continuation of Vodafone's market-by-market convergence strategy and we look forward to partnering with Liberty Global to create a fully integrated provider in one of our core European markets," Colao said.
Analysts from Jefferies International said the creation of the Dutch joint venture "solves a strategic weakness for Vodafone" in the Netherlands. Although the Netherlands is a small market for the UK-based group, it could have become "troublesome", the analysts said.
"This is Vodafone's second-biggest market without convergence capability, and KPN is pushing fixed-mobile products [under KPN Complete]. Vodafone could have found itself under increasing pressure had, for example, Liberty Global opted to address mobile via T-Mobile NL," the analysts commented.
Deutsche Telekom is currently considering its options for T-Mobile NL, which lacks a convergence play. It was reported last week that the German parent had narrowed the list of potential bidders to just two private equity firms, although the German operator may decide to keep the business if it is not able to secure the right price.
Jefferies also noted that Liberty Global's "willingness to work with Vodafone in addressing markets under pressure has credible implications for UK/Germany", but commented that Vodafone's management had made it clear that the Dutch joint venture is "no blueprint" for other markets.
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