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Liberty Global-Vodafone Deal Faces EU Antitrust Investigation

Liberty Global’s LBTYA divestiture of its assets in Germany and Eastern Europe to Vodafone VOD is now facing a full-scale investigation (Phase 2 review) by European Union (EU) antitrust regulators, per Reuters.

EU regulators believe that the transaction worth $21.8 billion (£17.13 billion) will give Vodafone undue competitive advantage in Germany and the Czech Republic. Notably, the deal also expands Vodafone’s footprint in broadband, cable and mobile services in countries like Hungary and Romania.

However, the antitrust agency doesn’t see any negative impact of the deal in Romania and Hungary. The commission expects to give its verdict by May 2, 2019. Both Liberty Global and Vodafone expect the deal to get EU approval by mid-2019.

Here's Why the Deal Is Encouraging

The deal will help Liberty Global concentrate on smaller number of European markets where it can grow rapidly. Moreover, the deal will provide $12.7 billion (€10.6 billion) of estimated cash proceeds to the company that it will further invest in its core European assets.

Post the completion of the divestiture, Liberty Global will be present in the United Kingdom and Ireland through Virgin Media. The company will have assets in Belgium, Switzerland, Poland and Slovakia. Liberty Global will also retain a 50% stake in VodafoneZiggo, a joint venture in the Netherlands.

In the last reported quarter, U.K./Ireland revenue generating unit (RGU) additions were 105,000, up from 92,400 in the year-ago quarter. Continuing CEE (Poland, Slovakia and DTH) gained 17,200 RGUs compared with a loss of 4,900 in the year-ago quarter. However, the company lost RGU in Belgium and Switzerland.
 

Liberty Global PLC Price and Consensus

Liberty Global PLC Price and Consensus | Liberty Global PLC Quote

 

For Vodafone, the transaction will expand its footprint in Europe. Upon completion of the deal the company will be able to offer fixed and mobile services in the Czech Republic, Hungary and Romania. Vodafone will also be able to serve enterprises in the region.

The deal will definitely boost Vodafone’s competitive position against Deutsche Telekom in Germany. Moreover, it will be catapulted to the position of a cable giant in the fragmented market with infrastructure across Germany, Italy, Portugal, Spain, the U.K. and other European countries.

Moreover, the deal will not only strengthen Vodafone’s presence in the major part of Europe but also provide cost synergies.

Conclusion

Undoubtedly, once completed, the Liberty Global-Vodafone deal will change the European telecom scenario. However, the investigation can now delay the completion of the deal within the stipulated time frame, which doesn’t bode well for both the companies.

While Liberty Global currently has a Zacks Rank #5 (Strong Sell), Vodafone has a Zacks Rank #4 (Sell).

Stocks to Consider

Gray Television GTN and Rogers Communication RCI are two better-ranked stocks in the broader consumer discretionary sector. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Expected long-term earnings growth rate for Gray Television and Rogers Communication is 10% and 5%, respectively.

 

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Gray Television, Inc. (GTN) : Free Stock Analysis Report
 
Liberty Global PLC (LBTYA) : Free Stock Analysis Report
 
Rogers Communication, Inc. (RCI) : Free Stock Analysis Report
 
Vodafone Group PLC (VOD) : Free Stock Analysis Report
 
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