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Vodafone in Asset-Swap Talks With Liberty

Iain Morris
6/5/2015
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Vodafone has confirmed it is in discussions with cable giant Liberty Global about a possible asset swap but insisted the two companies are not planning a full merger.

In a statement issued Friday morning in response to recent media speculation, the UK-based operator said it was in the "early stages of discussions with Liberty Global regarding a possible exchange of selected assets between the two companies."

The statement comes after John Malone, the chairman of Liberty Global Inc. (Nasdaq: LBTY), was last month reported to have said Vodafone Group plc (NYSE: VOD) would make a "great fit" with Liberty in Europe if the two organizations could find a way of working together or combining. (See Liberty Global Keen on Vodafone Tie-Up – Report.)

But Vodafone appeared to rule out the latter option in today's statement, insisting it "is not in discussions with Liberty Global concerning a combination of the two companies."

Vodafone has more than 122 million mobile subscribers in Europe, while about 26 million homes in the region were taking services from Liberty at the end of March.

A deal could see Vodafone acquire cable assets from Liberty in a number of European markets, with Liberty taking control of mobile phone networks owned by Vodafone elsewhere.

Alternatively, the companies may look to form joint-venture agreements in markets where Vodafone is weak in fixed while Liberty struggles in mobile.

In the UK, for instance, Vodafone must rely on fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) for mobile backhaul and to provide its own broadband services, while Liberty's Virgin Media Inc. (Nasdaq: VMED) rents capacity from 4G market leader EE to compete in mobile.

A looming merger between BT and EE has undoubtedly increased the pressure on both Vodafone and Virgin Media to find alternative arrangements. (See BT Locks Down £12.5B EE Takeover Deal.)


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


Elsewhere, too, both companies are keen on beefing up their capabilities as rivals with fixed and wireless assets launch "quad-play" offerings that bundle fixed voice, broadband, TV and mobile services in one package.

Like other telecom operators, Vodafone also believes there are synergies to be had from owning fixed-line and mobile infrastructure, and that combining the capabilities of the different technologies could produce new types of converged services.

Liberty, meanwhile, has already demonstrated that it prefers to control its own mobile network than rent capacity from mobile rivals in certain European markets.

In April, its Belgian Telenet subsidiary agreed to pay €1.325 billion (US$1.5 billion) for BASE , a mobile operator owned by Dutch incumbent KPN Telecom NV (NYSE: KPN). (See Telenet Buys KPN's BASE in $1.4B Deal.)

Telenet has been operating as a mobile virtual network operator through a deal with Mobistar SA , Belgium's second-biggest mobile operator, but has said network ownership will allow it "to secure long-term access conditions."

Analysts had previously suggested that Vodafone might spin off its non-European businesses into a separate company before merging with Liberty, but such a mega-deal would have been hard to execute and faced numerous regulatory hurdles.

Vodafone might also see little need for a tie-up with Liberty in some key markets following recent takeover activities.

In Germany, for instance, Vodafone has already acquired Kabel Deutschland GmbH , the country's biggest cable operator, and is working on developing quad-play services in response to recent convergence moves by rival Deutsche Telekom AG (NYSE: DT).

That said, an acquisition of assets owned by Unitymedia GmbH , Liberty's German subsidiary, could strengthen Vodafone's position in Germany's broadband market if regulatory authorities were to bless the deal.

Besides Germany and the UK, the two companies are both present in the markets of the Czech Republic, Hungary, Ireland, the Netherlands and Romania.

Vodafone's share price opened 2.4% higher on the London Stock Exchange this morning but was trading 2.3% lower by 9.20 a.m.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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James_B_Crawshaw
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James_B_Crawshaw,
User Rank: Blogger
6/5/2015 | 4:27:43 PM
Re: Powerful partnership
The only countries where VOD and Lib Glob overlap are UK, Ireland, Germany and Netherlands. 

When Kabel Deutchsland tried to buy Tele Columbus in 2013 the deal was blocked by regulators. Since then VOD bought KD. VOD/KD has about 15m cable subs, Lib Glob has 13m in Germany while TC has about 2m. I doubt regulators would allow a VOD/KD-Lib Glob merger in Germany. 

Agreed - not buying VM was a mistake by VOD as was waiting too long to buy KD (paying over the odds after its IPO). 

Perhaps VOD can give Lib Glob its Irish and Dutch businesses plus a wad of cash in exchange for VM in the UK. The corporate branding is red and both companies have names that start with a V so it must make sense. 

Spinning off the Indian business plus the other emerging markets businesses makes sense if you believe VOD currently suffers a conglomerate discount for having 2 very different businesses together (Europe and emerging). Vodacom is already listed so the best thing would be just to sell the stake in a public offering. 

 
Gabriel Brown
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Gabriel Brown,
User Rank: Light Sabre
6/5/2015 | 8:34:32 AM
Re: Powerful partnership
A partnership? Meh. To run a converged telco operation, you're either in or you're out.

A halfway house partnership will emerge if they can't agree on price (a likely outcome), but I wonder how satisfactory that would be.

Also:

In the UK -- why didn't VOD buy Virgin Media a few years back instead of letting Liberty steal a march? The logic was obvious back then. That was a strategic error by VOD.

In Germany -- I'd imagine there will be regulatory quibbles combining two cable operators, although the German regulator has proved quite accommodating to telco M&A recently.

In emerging markets -- this is where Vodafone's growth is coming from. Hard to understand why it would spin these assests off.
Ray@LR
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[email protected],
User Rank: Blogger
6/5/2015 | 6:38:52 AM
Powerful partnership
Strategic partnership between these two companies could really boost both companies' potential in residentila and business services across Europe. If they get this right it could cause some real competityive pain for telcos.  
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