"Telefonica (TEF.MC) chief executive Jose Maria Alvarez-Pallete said: “Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK, at a time when demand for connectivity has never been greater or more critical.”
What are your thoughts on this?
Hi,
I do not know much about Virgin Media (and its American owners) apart from the competitive services it offers in the UK. I am also aware of the services that Telefonica/O2 offers both in the UK and elsewhere.
Regarding the stocks, I can only comment on Telefonica, hence here is my point of view on the stock:
I have been following Telefonica for some time and as you can see for yourself its price has been falling for over 10 years. It has offered good dividends (though quite often as shares not cash) however even if you include the dividends since 2010, if you would have invested then the break even price would be around 10 euros
without considering dividend taxes.
I also think that Eurozone stocks will go down again before they go up again, this particularly applies to Telefonica which has recovered very little from the Coronavirus impact on its stock price, it was over 6 euros prior to COVID-19 and now it is around 4.30 euros, quite close to its minimum price during this crisis which was around 3.70 euros.
The main factor that analysts have penalised it on is its high debt. Over the last few years it has decreased it by carrying out significant disinvestments, which also leads to lower revenue. It is believed to have put its south and central american businesses (except Brazil) for sale, however I do not think that this represents a large portion of its EBITDA and it does not seem like it will manage to sell it during the COVID-19 crisis, it will have to wait.
Also, it has confirmed its 0.40 euro dividend for this year (in 2 payments, half in June/July and half in December), however I think that it will be mainly given out in the form of shares with its associated share dilution.
As I understand it the Virgen+O2 agreement will not be implemented until 2021, so the short term impact of the merger will be limited. Also, it will need to be approved by the relevant competition authorities, whether European or British (or both).
As such, and considering its downward trend I think that an interesting price to invest at would be around 2.50 (maybe a bit higher if the IBEX35 does not fall much more). I think that from such a price and if it manages to get into the digital/cloud based market the share price could grow alot.
Obviously, all of this is just my own opinion 
.
That’s true, we will see if the merger passes the Competition and Markets Authority (CMA) phase. However we did see exceptions due to Coronavirus if one of the companies involved are suffering hence speeding up the process.
True, but in this case if it is done before 2021 and as I understad it, it would also have to be approved by the European commission, which in the past has not been found to be very keen on reducing the number of Telecomm providers in any EU country beneath around 5, as they, quite understandably, seek to prevent a monopoly/oligopoly on such a critical infrastructure and service. According to some newspapers, the British authority (CMA) is seen to be less stringent and is more likely to approve the operation.
In this case it may be good for consumers if the operation is approved as they operate in slightly different markets (phone against broadband) and could offer deals/packages to compete with BT, but I do understand why they prevented O2 from being sold to Three, as this would have reduced significantly the number of large phone operators, to just 3. (Vodaphone, EE/BT and 02/Three).
Having said all of this, due to the proximity of the end of the transition period (in theory, unless it is extended) the European Commission may waver its authority and delegate it on the CMA.
I find this interesting, as someone who has a Virgin SIM only plan as my means of communication, its interesting to note that virgin uses the EE network at the moment. a merger would mean they move over to O2 network which may have a small negative to EE value due to loss of some business agreements, but a high potential for profit and growth if they managed everything properly. I may just need to get myself some shares in both Virgin and O2 to put my money where my mind is.
My mom has used O2 for years and never had any issue prompting her to change providers, while I constantly look for the best deal suited to my needs. it would be the first time in years where we end up with the same provider, resultant to a merging of service products.
@Dao, when you refer to “Virgin shares” what do you mean?
As I understand it, Virgin Media is currently in the hands of an American company and is completely separate from the rest of the Virgin empire (Virgin flights, Virgin bank, Virgin Music, etc) as it has different ownership.
Could anyone confirm?
Also, if you wish to invest in O2 I believe the only option is to buy shares in Telefonica, which is a spanish telecommunications company listed on the Madrid stock exchange and part of the IBEX35. Its main markets are Spain, Brazil, Germany and the UK.
I am aware, just wasn’t referring to them by their listing but just what I experience them as in day-to-day life.
I understand.
I think this is the company that owns Virgin Media:
Liberty Media Corp-Liberty Formula One
I do not see the F1 side going well anytime soon, even if the GPs go ahead I guess there will be limited to no attendance which may impact their earnings, unless they can balance this with increased earnings from the TV/streaming side.