A £31bn merger and a master dealmaker in action
John Malone shows his adroitness in deal between Liberty Global and Telefónica
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John Malone and the art of optionality in dealmaking
Earlier this week, we gave you a short but important refresher on a legendary dealmaker: John Malone, the US billionaire known as the “Cable Cowboy”.
We listed some of the reasons that have made him stand out in the telecoms and M&A industry ever since he first started wrangling together deals in the 1970s.
That list includes things for which he is well known for, such as avoiding tax payments wherever possible, and the incredibly resourceful use of debt, that would impress even the most experienced private equity investors.
But the thing that is often overlooked about Malone’s craft is actually a far more obvious observation. It is something he has yet again achieved with Thursday’s announcement that Liberty Global, the US-listed, European cable company he controls, would combine its Virgin Media business in the UK with O2, the mobile provider owned by Spain’s Telefónica.
And that is the ability to create optionality with every move you make. Before we explain, here’s our news story on the £31bn combination and here’s the FT tick-tock on how the megadeal came together. It starts off at the five star Boca Raton Resort & Club in January.
That was where Malone’s top team had gathered to plot their next move in the UK market during daytime meetings, which were topped off by night-time yoga sessions and a private concert by rock singer Lenny Kravitz.
Back to the point about optionality and this transaction. We’ve already explained this week that the transaction creates a 50/50 venture with Telefónica. So one obvious outcome is that in time the venture will seek a stock market listing, which will give Malone’s Liberty Global a possible route for an exit, and those plans are built into the agreement.
But there is another intriguing possibility: that is whether the deal has pushed Vodafone, a UK competitor to O2 in mobile services, against a wall.
As Nic Fildes reports in his tick-tock: “One Liberty Global insider argued that ‘plan A’ in the past had always been a sale of Virgin Media to Vodafone and that the O2 deal could smoke out a rival bid . . . In the UK, Virgin Media signed a deal last year to use Vodafone’s network for its mobile customer base for 5G.”
Without a partner to converge services in the market, that means it now faces a situation where Virgin Media has been valued at £18.7bn including debt. That number becomes a baseline that will need to be surpassed if any counter-strike is made by Vodafone. Oh, and of course, it will need to remember Malone’s views on paying any taxes on a deal.