What will happen if Virgin Media merge with O2

  John Malone's Liberty Global is in talks to merge his Virgin Media business with O2, a UK telecom operator, a tie-up that would reshape the British telecoms market. 

  Telefonica had agreed to sell O2 to rival Three for ￡10.25bn in 2015, but was blocked by regulators. A merger with Liberty Global could now give mobile-phone companies more value than they agreed to five years ago. Liberty Global had also been in contact with Vodafone about a merger, but the two companies did not appear to be in a happy negotiation, with the deal not going ahead because of their differing views on the value of their respective companies.

  Virgin media is valued at £15.5bn and O2 at £11bn, according to bank analysts. Liberty Global is likely to pay telefonica between £5bn and £7.5bn in cash to reflect the £12bn of net debt Virgin Media has on its books. The merger is expected to generate £6bn in synergies and cost savings due to reduced operating expenses.

  Liberty Global, seen as a potential king of the UK telecoms industry, has sold most of its European empire to vodafone to focus on a few markets, including the UK. The executive team at virgin media was strengthened to add senior executives with mobile and investment banking experience. If Liberty Global were to merge with telefonica, a move that would create a stronger competitor to incumbent BT group.

  The company's shares rose 15% on Friday night after news of the deal surfaced. Shares in Telefonica rose 2.6 per cent to 4.29 in early European trading. Despite many headlines, its market leadership is threatened by a potential merger between O2 UK and Virgin Media. Their rival Bt's shares opened slightly below 3%, but have since returned to parity that is because:

• Adding mobile operators to virgin media's cable network has been a long time coming. Mergers between fixed and mobile operators usually bring huge synergies, and Britain's relative backwardness in "convergence" is likely to be addressed as business offers become easier (and cheaper) at last.
• The deal could also precipitate a long-awaited break-up of Britain's telecoms industry. In Europe, this is an unusual market because the big players in broadband are not the same as the big players in mobile. Therefore, the cooperation between the two brands may be the beginning of further integration. At the very least, it could prompt all other solo participants to undertake a substantive review of the strategy.
• With Britain now outside the EU, some people thought that such a deal could face domestic scrutiny.