Vodafone goes back to basics after failed Liberty deal

Wed Oct 7, 2015 3:05am EDT
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By Leila Abboud, Pamela Barbaglia and Kate Holton

LONDON (Reuters) - With a $120 billion merger with Liberty Global (LBTYA.O: Quote) off the table, Vodafone (VOD.L: Quote) boss Vittorio Colao needs his strategy of higher network investments and acquisitions of European cable companies to start paying off, quickly.

The world's second-largest mobile operator abandoned talks with John Malone's Liberty last week over valuation disagreements that would have seen a swap of assets or a broader merger that could have helped Vodafone, in one fell swoop, offer mobile, broadband and TV in its biggest markets.

Instead the focus now returns to the unglamorous effort to get revenues and profit growing steadily again, especially in Germany and Spain where Vodafone spent 15 billion euros buying cable players Kabel Deutschland and Ono to compete with local leaders Deutsche Telekom (DTEGn.DE: Quote) and Telefonica (TEF.MC: Quote).

In addition to operational progress, several bankers said Vodafone should also move ahead with floating its Indian mobile business, its biggest emerging market holding, so as to show the value within the company.

One person familiar with the situation said management focus would now return to running its biggest markets, including attacking the former state-owned monopolies that it competes with on regulatory and commercial fronts.

"We really need to see an operational turnaround in Europe in this fiscal year. That is priority number 1, 2, and 3, including the integration of cable assets in Germany and Spain," said Bruno Grandsard, a portfolio manager at Axa Investment Management, Vodafone's tenth-biggest shareholder with a 1 percent stake.

"Then they need to continue to develop an approach to accessing fixed assets in markets where they don’t have them like Britain, Italy, and the Netherlands."

Were Vodafone to make those improvements, it would not only keep investors on side but put the firm in a stronger position for when Liberty comes calling again - as it is expected to do.   Continued...

Branding for Vodafone is seen on the exterior of a shop in London, Britain, September 10, 2015. REUTERS/Toby Melville