Vodafone Said to Discuss Ideas Including Merger With Liberty

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Vodafone Group Plc and Liberty Global Plc are discussing a range of potential transactions, including an outright merger, amid consolidation in the telecommunications industry, people with knowledge of the matter said.

The talks are informal and at a very early stage, and an agreement may not be reached because of the complexity of the proposed transactions and regulatory concerns, said the people, asking not to be identified because the deliberations are private. Management issues, including who would run the combined company and the role of billionaire Liberty Global Chairman John Malone, are also a hurdle, two people said.

Other options under discussion include a combination of the companies’ European businesses as well as a series of asset swaps, the people said. A merger of the two carriers would be one of the largest deals ever based on enterprise value, with Liberty Global currently at about $89 billion and Vodafone topping $140 billion. Liberty has soured slightly on the talks in recent weeks, said one of the people.

Representatives for Newbury, England-based Vodafone and London-based Liberty Global declined to comment.

Vodafone shares climbed 2.1 percent to 253.35 pence at 8:02 a.m. in London. Liberty Global jumped as much as 6.2 percent in late U.S. trading on Thursday.

Deal Frenzy

Facing increasing pressure to maintain profit growth, phone companies are using acquisitions to expand while cheap financing remains available. Liberty Global is the largest cable company in the world and could diversify its products by owning wireless assets, offering what’s known as a quad-play to customers including TV, landline phone, broadband Internet and wireless service.

European telecommunication companies have been rapidly consolidating to gain scale and offer more services amid competition that’s driving down prices and profit margins. BT Group Plc said in February it agreed to acquire EE Ltd., the U.K. mobile business co-owned by Deutsche Telekom AG and Orange SA, for $19 billion. That deal also created a company that could offer a quad-play.

The next month, Telefónica SA sold 02, its wireless carrier in the U.K., to Hong Kong-based Hutchison Whampoa Ltd. for $15.3 billion.

Evolving Structure

The possible structure of a deal between Vodafone and Liberty Global has been evolving since late last year. While buying Liberty outright was Vodafone Chief Executive Officer Vittorio Colao’s original idea, more recently his goal has shifted into acquiring that company’s western European assets, one of the people familiar with the matter said.

As part of a merger of the companies’ European assets, Vodafone would likely explore a spinoff of its operations in the Middle East and Africa, one of the people said.

In an interview with Bloomberg News last month, Malone said a tie-up with Vodafone would be a “great fit” for his cable empire in western Europe, his first public comments on a long-mooted combination of the carriers.

He cited the benefits of a merger in markets such as Germany, the U.K. and the Netherlands.

Malone has been busy consolidating distribution assets. His Liberty Broadband Corp. owns more than 25 percent of Charter Communications Inc., which just agreed to acquire Time Warner Cable Inc. for $55 billion.

Liberty Global bought Dutch cable provider Ziggo NV last year and U.K.-cable operator Virgin Media Inc. for $16 billion in 2013.

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