Vodafone and Liberty Global end European tie-up talks

LONDON (Reuters) - Vodafone and Liberty Global have abandoned talks about a swap of business assets in Europe’s converging mobile phone, broadband and TV markets, they said on Monday, having failed to agree on valuations.

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

Vodafone, the world’s second-biggest mobile operator, said in June it was considering swapping some assets with Europe’s biggest cable company, but denied persistent rumours that the two were looking at an outright merger to enable them to better compete as mobile and fixed-line broadband markets converge.

Both sides confirmed on Monday that the negotiations had been terminated, without commenting further.

However, bankers said the logic of a tie-up between the two groups was intact and did not rule out the prospect of Vodafone feeling compelled to buy all of Liberty.

Sources close to the discussions said the latest talks foundered on valuing the assets on both sides.

“We have not got there today, but we are not closing the door on potential discussions in the future,” one person said.

Vodafone was thought to have put a number of proposals on the table but was unable to bridge the valuation gap, another said.

Liberty Chairman John Malone, who saw the companies as a “great fit”, had already said earlier this month they were struggling to progress with the plan, telling Bloomberg that “conceptually there could be some real value created but realistically we haven’t been able to figure out a way to do that that’s mutually successful”.

Shares in Vodafone, which had fallen 10 percent since the talks were revealed in June, were trading down 3.6 percent at 210 pence at 1340 GMT, while Liberty Global’s share price, down 8 percent in the same period, was down 4 percent at $46.


An exchange of major assets between two companies of the size and complexity of Vodafone and Liberty Global was always seen as difficult to pull off, industry sources said.

The companies had overlapping businesses in seven countries, but an asset swap would only have been a game changer in Britain, Germany and the Netherlands, analysts at rating agency Moody’s said.

“However, regulatory issues in Germany, the strategic nature of the UK operations for both groups, and the availability of multiple mobile assets for Liberty in the Netherlands, made combinations in these three markets very challenging.”

Deutsche Bank said it was pleased Vodafone had not rushed to do another fixed-line deal at any price and was left with a potential opportunity to exploit overlap with Liberty on more attractive terms at a later date.

“Vodafone’s organic revenue trends and rating is likely to improve at a time when Liberty is finding the going tougher from the incumbents who are deploying more fibre,” its analysts said.

One banker, who did not want to be named, said a full combination of Vodafone, which has a market value of $88 billion, and Liberty, worth $41 billion, made sense but it would take time.

“Vodafone benefited the most from suspending talks at this stage; they’ll be able to negotiate better terms down the line, especially if mobile valuations go up,” he said. “Vodafone needs to wait for valuations of mobile and cable to converge.”

The companies have never specified which assets were being discussed, but bankers and industry analysts said in June the German and British markets would be at the top of the agenda.

Vodafone and Liberty are first and second in the German cable television markets, owning Kabel Deutschland and Unity Media respectively.

The talks included Liberty Global’s German cable assets, and cable assets elsewhere in Europe, according to the person close to the matter.

Analysts had said a tie-up in Britain, where Liberty owns cable company Virgin Media, also made sense.

Vodafone and Virgin are facing a fundamental change in the competitive landscape in Britain following broadband giant BT’s 12.5 billion-pound ($19 billion) deal to buy EE, the country’s biggest mobile network operator, from Orange and Deutsche Telekom. Virgin Media currently piggybacks on the EE network to provide its mobile service.

Meanwhile Hutchison Whampoa, owner of the Three UK mobile network has agreed to buy Telefonica’s O2 UK for 10.25 billion pounds, a combination that would leave Vodafone as the smallest of the UK’s three remaining mobile network operators.

(This story adds further reactions, updates Liberty’s share price; refiled to delete garbled phrase in paragraph 13)

Additional reporting by Pamela Barbaglia; Editing by Mark Potter and Greg Mahlich