Talk of a tie-up between Vodafone and Liberty Global resurfaced this week after comments made by the cable group’s chairman in a media interview. However, a combination of the two multinational businesses would not be easy to accomplish.
Vodafone, with its mobile strength in certain key European markets, would be a "great fit" for Liberty Global, John Malone said in an interview published by Bloomberg on Wednesday. The companies could benefit from "substantial synergies" if they could find a way to work together in Western Europe, he said.
Vodafone and Liberty Global have often been named as potential bedfellows, with speculation increasing in recent months following a wave of consolidation in the European telecoms market and a growing drive towards quad-play services.
Both companies have been involved in M&A in Europe in the past couple of years. Most recently, Liberty Global’s Belgian cable operation Telenet agreed to pay €1.325 billion for KPN-owned mobile operator Base, while in the Netherlands the company is in the process of integrating its UPC business with new acquisition Ziggo under the latter’s brand.
Vodafone, meanwhile, has added fixed assets to its portfolio in Germany, through the acquisition of Kabel Deutschland, and in Spain by buying Ono.
Late last year, as consolidation took hold in the U.K., Vodafone CEO Vittorio Colao played down the possibility of making a move for Liberty Global, although according to media reports he expressed interest in the group’s German operations.
Since then, BT has agreed to buy EE, the largest mobile operator in the U.K. by subscribers, giving rise to much debate over the future shape of the market. Vodafone recently announced the launch of fixed broadband services in the U.K., but organic growth might well not be enough to enable it to compete with a combined BT/EE.
Liberty Global’s Virgin Media is arguably the strongest quad-play provider in the U.K., but it relies on an MVNO offering for its mobile presence. Meanwhile, Sky is also going down the MVNO route, brokering a wholesale access deal with O2 – itself in the process of being acquired by Hutchison Whampoa – to enable it to add mobile services to its pay TV and broadband offerings later this year.
Malone told Bloomberg that he sees a great f it between Liberty Global and Vodafone in the U.K., Germany and the Netherlands.
"There’s the promise of creating enormous shareholder value if we could work it out," he said.
But working it out will be no simple task.
Malone said the biggest barrier is the way the two companies are run: Vodafone focuses on "low leverage, low risk and high cash payout to their shareholders", while Liberty Global prefers to grow equity value, he said.
But there are other issues at play too, not least the structure and price of any deal.
According to Bloomberg, Malone declined to comment on whether talks are taking place between the two operators, and Vodafone is being similarly tight-lipped.
So, that’s not a ‘no’, then.
