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Telefónica confirms talks with Liberty Global to merge O2, Virgin Media

The Spanish telecoms firm said the negotiations are still at the initial phase

Liberty Global - Telefónica confirms talks with Liberty Global to merge O2, Virgin Media

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.

The merger could scupper a deal between Liberty Global and Vodafone PLC (LON:VOD), which was due to host all Virgin Media's customers on its network from the end of 2021.

If the talks prove successful, Virgin Media would move on O2's network.

According to Credit Suisse, it would also create uncertainty on mobile infrastructure services firm CTIL, a joint venture between O2 and Vodafone.

Turning to competitor BT Group PLC (LON:BT.A), UBS commented that the firm has a bigger fish to fry with the pension deficit /infrastructure competition for Openreach.

Shares in Liberty jumped 15% to US$22.29 in after hours trading.

--Adds detail, analyst's comment, shares--

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