The companies are looking to form a stronger “mobile competitor” with the new British joint venture, which will be shared equally. Combined revenue will be around £ 11 billion ($ 13.6 billion), while the deal estimates O2 at £ 12.7 billion ($ 15.7 billion) and Virgin Media at £ 18.7 billion ($ 23, 1 billion).
Virgin Media, part of the American media empire of billionaire John Malone, has 3.3 million mobile subscribers in the United Kingdom, as well as 6 million cable service customers.
The deal “creates a new telecommunications power plant to compete with BT,” said Jasper Lawler, research manager at the London Capital Group, in a note to customers Thursday.
The company’s shares plummeted by more than 9% in London, while Telefonica shares rose slightly in Madrid.
By partnering, Virgin Media and O2 will be able to cut costs, with annual “synergies” expected to reach £ 540 million ($ 667 million) five years after the deal closes, 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 authorization from regulators.
This investment will include £ 10 billion ($ 12.3 billion) in the next five years, the companies added.
The merger is good news for UK broadband users, according to analysts.
“Increased competition would encourage investment in a country that needs better and wider fixed broadband access, while also reducing BT’s dominant position,” Fitch Solutions wrote in a report Dexter Thillien and Michela Landoni of Fitch Solutions.