Vodafone Group Plc (ADR)(NASDAQ:VOD) and Liberty Global PLC have agreed on merging their business operations in the Netherlands. The two companies will form a 50:50 joint venture. Vodafone will have to make cash payment of € 1 billion to equalise the ownership in the new joint venture. This is based on thevaluation of the after deducting Ziggos’s €7.3 billion net debt. The joint venture will be under the supervision of both companies and will seek to create a nationwide integrated communication provider. It aims at establishing 15 million revenue generating units which will include 4.2 million on videos, 3.2 million on high-speed broadband, 2.6 million in fixed-line telephony and 5.3 million on mobile.
Last year, Vodafone Netherlands recorded revenues of about €2 billion. Ziggo, on the other hand, recorded revenues at nearly €2.5 billion while their operating cash flow was €1.4 billion. The new joint venture is expected to result in greater efficiencies, which will lead in a net present value of about €2.5 billion after integration cost.
From this venture, Liberty Global noted that it will contribute about €321 million of Ziggo net operating losses to the joint venture. It will retain ownership of the remaining €2.9 billion of its other Dutch net operating loss.
The new venture is expected to benefit both parties. Their collective global scale and technical expertise will give them the opportunity of providing customers with a broad range of services, products and content. The new venture will upscale competition and enhancing choices within the Dutch market.
The transaction of combining Liberty’s Ziggo operations and Vodafone’s mobile operation will complete at the end of 2016.Vodafone CEO, Vittorio Colao, noted that the partnership will make them a stronger competitor in Netherlands. This will be beneficial to both companies and the market at large. Liberty CEO stated he was excited about the partnership since it was in line with their vision of providing lightning-fast broadband speeds, seamless 4G wireless connectivity and a cool digital TV platforms and apps.