CHL China Mobile Limited

By Ian Walker, Newley Purnell and Simon Zekaria 

Liberty Global PLC is setting up a joint venture combining its operations in the Netherlands with Vodafone Group PLC, the U.S.-based cable operator said, in a bid to create a stronger local presence amid mounting competition in Europe's telecoms market.

Vodafone--the largest global mobile operator after China Mobile Ltd.--will pay Liberty Global, the Europe-focused operator controlled by cable tycoon John Malone, EUR1 billion ($1.12 billion) as part of the deal. Liberty said after integration costs, the 50-50 joint venture would be valued at about EUR3.5 billion in terms of combined revenue and capital expenditures.

The tie-up would merge Liberty Global's cable and Internet businesses--the largest in Europe by number of subscribers--with Vodafone's mobile operations to create a Netherlands-wide communications provider with more than 15 million subscribers, Liberty Global said.

The companies said earlier in February that they were in talks to create the joint venture, four months after discussions between the firms collapsed.

The talks between Liberty and Vodafone are part of a frenzy of European television and communications deal-making, with telecom and cable operators eager to benefit from the so-called "quadruple-play"--offering services that encompass fixed-line telephony, mobile, Internet broadband and pay-television. The packaged offerings are aimed at boosting subscriber revenue and winning consumer loyalty.

Liberty operates in some of Europe's biggest markets, including Germany, the Netherlands and the U.K., where it owns Virgin Media Inc. Liberty has been on an acquisitions hunt in recent years, looking to buy cable operators in Europe, where it has the majority of its broadband networks.

Vodafone, meanwhile, has also been looking at European acquisitions, and has purchased fixed-line assets in Germany and Spain to shore up its mobile business and bolster its position as a unified media player in the bundled-services market.

Like Liberty, Vodafone derives the majority of its profit and sales from the continent, with a focus on Germany, Italy and Spain.

Streaming platforms such as Netflix Inc. have also started to eat into their potential market, adding pressure to bulk up. The continent's telecom players have suffered in recent years from fragmented markets across Europe and slow growth, which hasn't picked up much since the depths of the global economic crisis and Europe's painful recession.

Vodafone has a 32% share of core mobile revenue in the Netherlands, compared with 39% for competitor Royal KPN NV. At the end of last year it began legal action against KPN, alleging its Dutch rival delayed the introduction of Vodafone's competing suite of television, fixed-line broadband and fixed-line telephone services in the Netherlands by three years.

Vodafone's chief executive said the move to form the joint venture wasn't necessarily a model for bigger markets like the U.K. and Germany.

"I don't believe in blueprints. Every country is different, and the competitors are different," Vittorio Colao said Tuesday. "Vodafone sometimes acquires assets, sometimes we accept partners. There is no such thing as a blueprint."

Liberty, which is based in the U.S. but focused on Europe, acquired KPN's Dutch cable rival Ziggo for nearly $10 billion in 2014.

Upon the third anniversary of the Liberty-Vodafone joint venture, either party can initiate an initial public offering and give the other the option to sell shares in any IPO. Each company has also agreed not to sell, or initiate a sale of their interest in the joint venture to any third party for four years, after that they can sell their shares, subject to first refusal by the other joint venture party.

The joint venture board will comprise three representatives from both companies and two members nominated by a works council.

The tie-up is expected to close around the end of 2016 and will be subject to regulatory approvals, Liberty Global said.

Liberty Global, with headquarters in both Englewood, Colo., and London, reported Tuesday its financial results for the three months and year ended Dec. 31. The firm's operating income for 2015 rose 5% from a year earlier to $2.3 billion.

Write to Ian Walker at ian.walker@wsj.com, Newley Purnell at newley.purnell @wsj.com and Simon Zekaria at simon.zekaria@wsj.com

(END) Dow Jones Newswires

February 16, 2016 05:38 ET (10:38 GMT)

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