Vodafone Group plc (LON:VOD) (LSE:VOD.L) has announced a 50:50 Dutch joint venture with Liberty Global plc (NASDAQ:LBTYA) called VodafoneZiggo Group. It will combined Ziggo’s fibre-rich broadband network with Vodafone’s mobile operation to produce a stronger operation within the Dutch marketplace. This should lead to improved benefits for customers, businesses and the public sector according to the two companies.
The joint venture has combined revenues in excess of €4 billion. It also has the fastest growing B2B business in the marketplace, while its mobile Revenue Generating Units (RGUs) stand at around 10 million fixed and 5 million mobile. Synergies for the deal are around €3.5 billion following the divestment of Vodafone’s consumer fixed business, Vodafone Thuis.
In my view, the combination makes sense. It should provide Vodafone with a stronger offering in what remains a key market for the business. It should provide a more compelling offering for customers, with a wider range of products and services being available. This could help to boost sales and profitability.
The deal comes at a time when sector peers such as Sky PLC (LON:SKY) (LSE:SKY.L), BT Group plc (LON:BT.A) (LSE:BT.A) and Talktalk Telecom Group PLC (LON:TALK) (LSE:TALK.L) are offering a wider range of services. For example, Sky now operates across Germany and Italy following its merger, and is also planning to move into Mobile in the near future. Meanwhile, BT and Talktalk are quad play operators which could benefit from cross selling over the medium term.
In my opinion, Vodafone remains a sound long term buy. Its significant exposure to Europe could count against it in the short run if Brexit causes a deterioration in the economic outlook for the region. However, with a sound strategy and strong financial resources, I believe that it offers a relatively bright long term outlook and has investment appeal for long term investors.