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Virgin Media O2 to snap up Russian oligarch-backed broadband firm | Mergers and acquisitions

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Virgin Media 02 is to buy a British broadband company owned by a Russian oligarch-backed investment company, after the government forced its sale on national security grounds.

VM02, the UK telecoms merger joint-venture between US group Liberty Global and Spain’s Telefonica, is to buy regional broadband business Upp, in an all-cash deal for an undisclosed amount that is thought to be less than £100m.

Ultimately, Upp, which has 4,000 customers and a broadband network passing 175,000 premises in the east of England, will be paid for and owned by Nexfibre.

Nexfibre is the joint-venture between Liberty Global, Telefonica and InfraVia Capital that has pledged to spend £4.5bn to roll out full-fibre broadband to at least 5m premises by 2026.

The UK government ordered the sale of Upp in December after deciding that ownership by the investment group LetterOne (L1) posed a risk to national security.

LetterOne, which acquired Upp in 2021 with plans to create a £1bn broadband network, has founders including the Russian oligarchs Mikhail Fridman and Petr Aven.

LetterOne has not been the subject of any sanctions, and moved to freeze the shareholding and dividend payments to its oligarch backers after Russia’s invasion of Ukraine.

However, Fridman and Aven have been subject to sanctions in some countries and this prompted the UK government to order the sale of Upp after a review of LetterOne’s ownership under the UK’s National Security and Investment Act.

The government ordered LetterOne, which strongly disagreed with the order to sell the broadband network, to complete a security audit of the Upp business and its broadband network prior to sale.

“We would like to extend our thanks to our previous shareholder for the belief and backing they gave us from the start,” said Drew Ritchie, the chief executive of Upp.

After the acquisition of Upp, Nexfibre said it plans to spend £350m and reach 500,000 homes with full-fibre broadband in the east of England by 2026.

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“We are on a mission to build and expand our network in suburban and semi-rural areas, closing the digital divide and boosting local economies,” said Andrea Salvato, the chair of Nexfibre. “Upp is a high-quality regional fibre network in the east of England and will accelerate our rollout.”

While the circumstances behind the sale of Upp are relatively unique, observers believe that many of the more than 100 so-called “alt nets” – mostly small broadband providers rolling out services across the country – will be snapped up by the biggest telecoms players as market conditions get tougher.

“Alt nets are a key piece of the connectivity jigsaw, but consolidation has been inevitable as new sources of funding dry up, focus on take-up intensifies and investors increasingly demand returns,” said Matthew Howett, the founder and chief executive at Assembly Research.

“Today’s announcement could well be the first domino to fall in terms of an alt net being bought by one of the big players.”

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