Renta 4 | Telefónica has announced an agreement to create a business services company in the United Kingdom. Virgin Media O2 UK, Telefónica’s 50% joint venture in the United Kingdom, has announced the creation of a company to provide telecommunications services to businesses (B2B) in combination with Daisy Group.
Virgin Media O2 UK will control 70% and Daisy Group the remaining 30%. The Chairman will be Matthew Riley, founder of Daisy Group, and the CEO will be Jo Bertram, Managing Director of Virgin Media O2 Business.
The new entity will start with annual PF revenues of around £1.00 million, adjusted EBITDA of £150 million and adjusted EBITDA of Capex will be €100 million and will offer significant economies of scale, enabling synergies of around £600 million to be achieved, mainly through cost savings, including integration costs (£70 million before tax until 2030, estimated).
The transaction will be financed through a loan from Virgin Media O2 (£425 million) and the contribution of £835 million of debt by the Daisy Group. Virgin Media O2 will issue additional debt upon closing of the transaction, which will enable it to repay part of the Daisy Group’s debt through intercompany loans. This transaction is expected to have a limited impact on Virgin Media O2’s leverage, which remains on target at 4x/5x EBITDA. The priority will be to reduce debt, rather than distribute dividends.
The transaction is expected to close in 2S 25 after receiving the relevant regulatory approvals.
Assessment: Positive news. We view Virgin Media O2’s alliance with one of the UK’s largest independent communications companies, which has a track record of successful growth, as favourable. One of our main concerns is the issue of debt. Virgin Media O2 UK is a highly leveraged entity (5.5x EBITDA 2024) and we believe that reducing debt is a priority. We will be monitoring the initial debt of the new B2B entity and the impact on the debt multiples of Telefónica’s UK subsidiary and the Telefónica group.
Target price: €4.50. Hold.
