Liberty Global stock price skyrockets on talks of O2 and Virgin Media merger

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on May 4, 2020
  • Liberty’s Virgin Media and Telefonica’s O2 in talks to merge
  • These two seem like a natural fit given Virgin’s fixed broadband business and O2’s mobile operations
  • Liberty stock price surged almost 15% on Friday following the news of a potential merger

Shares of Liberty Global (NASDAQ: LBTYA) skyrocketed nearly 15% after media reported that the British telecommunication operators Virgin Media and 02 are in advanced talks to merge. 

Fundamental analysis: A merger could be announced this week

The UK-based telecom operators Virgin Media (owned by Liberty Global) and O2 (owned by Telefonica (NYSE:TEF)) are in advanced talks to merge, Bloomberg reports. The idea behind the merger is to create a telecom giant by combining Virgin’s fixed broadband business with a mobile operator O2.

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In the meantime, both companies have confirmed the talks.

“The process started between both parties is in negotiation phase, with no guarantee, at this point, precise terms or its probability of success,” the Spanish multinational giant Telefonica said.

Although Telefonica only committed to saying that the process “started”, Bloomberg reports that the deal could be announced as soon as this week. Telefonica, whose shares are up more than 6%, is likely to use proceeds from a potential sale to finance its huge net debt. 

This news of a merger didn’t come as a surprise given that Telefonica has been trying to offload its UK arm O2 for years now. The mobile operator has generated more than £6 billion in revenue last year, three years after a £10.3bn merger between O2 and Three UK was blocked by the European Union. 

On the other hand, Liberty Global – owned by the U.S. billionaire John Malone – generates more than half of its revenue from the U.K. and Ireland.

Technical analysis: A  new 5-month high for Liberty Global

Shares of Liberty Global, Class A, gained nearly 15% higher on Friday following the news of a merger. As a result, the stock price has now erased all coronavirus-related lossed as it trades at a 5-month high.

Liberty Global stock daily chart (TradingView)

The buyers are now likely to target the 200-DMA at $22.56 in the coming days, with a horizontal resistance and the 2020 high near the $23 mark being in close vicinity. 

More importantly, the latest push higher has initiated a break of the downtrend that started in 2019 as the buyers reassume control of the price action. Any pullback to $20 is likely to be seen as a buying opportunity now. 

Summary

Shares of Liberty Global closed nearly 15% higher on Friday after the reports of a potential merger between its Virgin Media and O2 appeared in the media. The stock price is now trading at a 5-month high, erasing all coronavirus-related losses.

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