How Virgin Media O2’s failed takeover gambit cost 4,000 jobs

When Mike Fries, the 63-year-old boss of Virgin Media O2 (VMO2) parent company Liberty Global, mounted a defence of the £2bn broadband takeover he had engineered, his strategy was scattergun.

"Who is going to build a scale-based competitor to BT Openreach?" he said at a conference in London this year. "Who has the capital, the wherewithal, the customers? I don't think there's anybody else."

Criticism levelled at the deal by rivals was merely "sour grapes", he insisted, while simultaneously threatening to pull investment in the UK if it was blocked on competition grounds.

But his warnings fell on deaf ears. The Competition and Markets Authority (CMA) signalled last month that it was likely to block VMO2's takeover of Netomnia on fears it would push up prices for customers.

The apparent failure has set off fears that VMO2, owner of Britain's second-largest broadband network after BT, is headed for danger over its £22bn debt pile.

The Netomnia takeover promised a vital lifeline to help pay down this debt. With that deal on the ropes, bosses are now preparing to cut 4,000 jobs in an attempt to strip out £800m of costs.

It is a sobering shake-up for a company hoping to secure its position as the second-largest player in Britain's cut-throat broadband market. Yet some analysts warn that it might not be enough.

VMO2, which is jointly owned by Liberty Global and Telefónica, was formed through a £31bn merger of Virgin Media and O2 in 2021.

The deal gave it the scale to compete against BT as a converged mobile and broadband operator. But it also loaded the combined company up with debt.

While Telefonica's O2 arrived debt-free, Liberty's Virgin Media contributed a £11.3bn debt pile, a legacy of the chaotic cable rollout of the 1990s.

A major debt recapitalisation, which was used to fund a £7.1bn payout to the parent companies, pushed this up above £18bn. Total debt has since climbed further to around £22.4bn.

In many ways, it was a textbook deal for Liberty Global, the Bermuda-domiciled telecoms group controlled by cable cowboy John Malone. The company had partly been attracted to Virgin Media by the lawful tax avoidance opportunities offered by its historical debts.

Liberty Global, which has its London base in plush offices just off the King's Road in Chelsea, has gained a reputation for debt-fuelled takeovers and financial engineering. Its other UK investments include Formula E, ITV and film producer Lionsgate.

To date, the merger has paid off handsomely. Liberty and Telefónica have extracted more than £12bn from VMO2 through cash payouts and dividends.