The company is looking to form a stronger “cellular competitor” with a new British joint venture, which will be shared equally between them. The combined income will be around £ 11 billion ($ 13.6 billion), while the O2 deal value at £ 12.7 billion ($ 15.7 billion) and Virgin Media at £ 18.7 billion ($ 23.1 billion).
Virgin Media, part of the American billionaire John Malone’s media empire, has 3.3 million cellular subscribers in the UK, plus 6 million cable service customers.
The deal “creates a new telecommunications power plant to compete with BT,” Jasper Lawler, head of research at London Capital Group, said in a note to clients Thursday.
The company’s shares plummeted more than 9% in London, while Telefonica shares rose slightly in Madrid.
By working together, Virgin Media and O2 will be able to cut costs, with annual “synergy” estimated at £ 540 million ($ 667 million) five years after the deal is closed, they said. Virgin Media’s business in Ireland is not included in the agreement.
The merger is expected to close in the middle of next year after obtaining permission from the regulator.
The investment will cover £ 10 billion ($ 12.3 billion) over the next five years, the company added.
Mergers are good news for broadband users in the UK, according to analysts.
“Increased competition will encourage investment in a country that needs better and broader fixed broadband access, while perhaps curbing BT’s dominant position as well,” Dexter Thillien and Michela Landoni of Fitch Solutions wrote in a report.