What happened
Shares of both Liberty Global (LBTYA 2.21%) (LBTYK 2.32%) and Telefonica (TEF 1.20%) traded higher on Friday, after Bloomberg reported these telecommunication companies are planning to merge operations in the United Kingdom. Liberty Global's stock was the bigger winner from the news. Its Class A shares finished up 15% while its Class C shares rose 17%.
The response was more tempered for Telefonica, with shares rising 6% during the session.
Image source: Getty Images.
So what
In the U.K., Liberty Global is the sole owner of Virgin Media, through which it offers phone, TV, and internet services. Virgin Media is reportedly set to merge with Telefonica's O2 Wireless segment. O2 Wireless is one of the largest wireless carriers in the U.K.
A merger of these two operations would be a bold move for both companies. Consider that 57% of Liberty Global's 2019 revenue came from the U.K. and Ireland, where it does business under its Virgin Media segment. For Telefonica, the U.K. and O2 Wireless make up a smaller percentage of overall company revenue, but this is an area of sustained growth: It's grown U.K revenue for 14 consecutive quarters.
Some are speculating that Telefonica is hoping to off-load O2 wireless, to continue taking care of its heavy debt load. But that would be a surprise move considering that the company just said in its fourth-quarter earnings call that sustainable growth in the U.K. was a top priority.
Now what
Until Liberty Global and Telefonica validate the merger report, investors should take today's news with a grain of salt. Often the devil is in the details, and right now shareholders don't have enough clarity to understand the financial impact for either telecommunications company.
Investors may get that clarity soon. Telefonica is scheduled to report earnings on May 7, with Liberty Global expected to report in May as well.
