Liberty Global, Vodafone complete Dutch JV

International TV and broadband company Liberty Global and telco Vodafone have completed their 50:50 joint venture – first announced in February 2016 – to form VodafoneZiggo Group Holding, which the pair say combines Ziggo’s fibre-rich broadband network with Vodafone’s market-leading mobile operation to create a stronger converged competitor in the Dutch market, delivering significant benefits for consumers, businesses and the public sector through investment in digital infrastructure and customer experience.

“This joint venture is great news for Dutch consumers and businesses,” declared Mike Fries, CEO of Liberty Global. “VodafoneZiggo will be the most innovative provider of converged communications services in the Netherlands with a full suite of market-leading TV, broadband, fixed-line and mobile products on day one of the JV. We are also excited for our shareholders. This is a highly accretive transaction with significant synergies and a predictable dividend stream. When including over €500 million of cash generated and up-streamed since the announcement of the deal back in February, total proceeds to Liberty will exceed €2.7 billion. We look forward to deploying that capital to drive long-term growth and investor returns.”

“Today marks the creation of a strong integrated communications provider in the Netherlands, combining the complementary skills and experience of Vodafone and Liberty to bring a range of benefits to consumers, enterprises and the public sector,” added Vittorio Colao, Vodafone Group Chief Executive. “The merged operation will be a stronger competitor in the Netherlands – one of our core European markets – and is a further example of Vodafone’s ability to create value for its customers and shareholders through an effective market-by-market convergence strategy.”

The JV will operate under both the Vodafone and Ziggo brands and will create a nationwide integrated communications provider with 7.1 million homes passed by the fibre-rich broadband network of Ziggo and the nationwide 4G mobile coverage of Vodafone’s Dutch operation. VodafoneZiggo has nearly 15 million RGUs, of which 4.0 million are video, 3.1 million are high-speed broadband, 2.5 million are fixed-line telephony and 5.2 million are mobile. For the twelve months ended September 30, 2016, the JV would have generated over €4 billion of revenue.

By combining Ziggo’s market‐leading Horizon TV product suite, including Replay TV, Ziggo Sport, 300 Mbps nationwide broadband internet and an extensive Wi‐Fi network, together with Vodafone Netherlands’ data‐rich 4G mobile propositions, Dutch consumers will enjoy the highest quality customer experience both within and outside the home. In addition, the JV creates a leading national enterprise business through the combination of Vodafone Netherlands’ extensive B2B expertise, product portfolio and distribution footprint with Ziggo’s fast-growing B2B operation and its high‐capacity nationwide cable network.

The new combined management team will rapidly bring to market converged propositions for Dutch consumers, enterprises and the public sector.

The VodafoneZiggo JV is expected to generate significant efficiencies. As a result of the sale of Vodafone’s consumer fixed business Vodafone Thuis, the cost and capex run-rate savings targeted for 2021 have been reduced from €280 million to approximately €210 million. However, the sale immediately improves the cash flow of the JV as Vodafone Thuis had been generating negative cash flow (€73 million outflow in the 12 months ended September 2016 as shown in the table above). In addition, expected integration costs will also be reduced from €350 million to €280 million as a result of the Vodafone Thuis sale.

Separately, and following a detailed review, the parties have agreed to increase the scope of services to be provided by both parent companies post completion to ensure that VodafoneZiggo will benefit from the full scale and complementary expertise of each partner. As a result of this increased scope as well as changes in the assumed underlying activity levels, the estimated amount of the agreed upon annual shareholder charges to the JV has increased from the previously reported estimate of €182 million for calendar 2015 to an estimate of €211 million for calendar 2017.

In connection with the September 2016 recapitalisation of VodafoneZiggo and the equalisation payment, Liberty Global will receive approximately €2.2 billion in cash post-closing and Vodafone will receive approximately €0.6 billion. These amounts are based on (i) the €2.8 billion of net recapitalisation proceeds from VodafoneZiggo, with each party receiving a 50 per cent share, and (ii) an equalisation payment from Vodafone to Liberty Global of €0.8 billion. In addition, both companies have retained the cash generated by their respective Dutch operations from the February 15 signing date through December 31, 2016 (over €0.5 billion for Ziggo and approximately €0.3 billion for Vodafone Netherlands), bringing the total cash proceeds to over €2.7 billion for Liberty Global and approximately €0.9 billion in net cash for Vodafone.

Following all post-closing payments, VodafoneZiggo will have gross debt of €10 billion. As previously disclosed, the JV will distribute 100 per cent of its available cash to both shareholders, subject to a minimum operational cash balance, and is expected to undertake periodic recapitalisations, subject to market and operating conditions, to maintain its 4.5x-5.0x target leverage ratio.

Going forward, neither Vodafone nor Liberty Global will consolidate VodafoneZiggo, which will be reported as an equity affiliate or associate by both companies.

 

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