Photographer: Simon Dawson/Bloomberg

Vodafone Says It’s in Asset-Swap Talks With Liberty Global

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Vodafone Group Plc is in talks to exchange assets with billionaire John Malone’s Liberty Global Plc, a deal that could transform Europe’s biggest wireless and cable providers.

Vodafone and Liberty Global are discussing a range of potential transactions, including combining their western European businesses, swapping some assets, or an outright merger, Bloomberg reported Thursday. In a statement Friday, Newbury, England-based Vodafone said the asset-swap talks are at an early stage, while it’s not currently negotiating a full merger with Liberty, which declined to comment.

An exchange of businesses could significantly change the composition of both carriers. One structure that has been discussed would involve merging Vodafone and Liberty units in western Europe, while separating operations in eastern Europe, the Middle East and Africa, according to two people familiar with the matter who asked not to be identified discussing private talks. That would in effect create two entities: a developed-markets business centered on Germany and the U.K., and another, focused on faster-growing emerging markets. The companies together have more than $80 billion in annual revenue.

“A combination of the two, then disposal of non-core, is still the likely outcome,” said Neil Campling, an analyst at Aviate Global in London. “It will clearly take time, but for the first time, there is an admission that discussions have begun.”

Deal Frenzy

Vodafone, whose mobile-phone empire stretches from India and South Africa to the U.K., fell 1.9 percent to 243.50 pence at 3 p.m. in London. Liberty was up 1.5 percent at $55.44 in Nasdaq Stock Market trading.

European telecommunication companies have been rapidly consolidating as competition drives down prices and profit margins. BT Group Plc in February agreed to acquire EE Ltd., the U.K. wireless venture of Deutsche Telekom AG and Orange SA, for about $19 billion. The next month, Telefonica SA reached a $15.3 billion deal to sell its 02 U.K. unit to Hong Kong-based Hutchison Whampoa Ltd., owner of the Three mobile brand.

Vodafone said it’s in talks to exchange assets with billionaire John Malone’s Liberty Global in a deal between two of Europe’s biggest wireless and cable providers
Vodafone said it’s in talks to exchange assets with billionaire John Malone’s Liberty Global in a deal between two of Europe’s biggest wireless and cable providers
Matthew Staver/Bloomberg

Under Chief Executive Officer Vittorio Colao, Vodafone serves 446 million mobile customers in more than two dozen countries. Liberty, led by CEO Mike Fries, is the biggest cable company by subscribers and makes more than 90 percent of its revenue in Europe.

‘Great Fit’

In an interview with Bloomberg last month, Chairman Malone said a tie-up with Vodafone would be a “great fit” for his cable businesses in western Europe. The 74-year-old cited the benefits of a merger in Germany, the U.K. and the Netherlands.

In another scenario, Vodafone may sell its Dutch unit to Malone and buy Liberty’s U.K. and German businesses, according to Bloomberg Intelligence analyst Erhan Gurses. Either company could benefit from gaining scale in Germany. Vodafone has more than 5 million broadband customers in the country and Liberty has more than 7 million.

Vodafone could also expand its base in the U.K. where it will soon have to compete with a merged BT and EE. Liberty meanwhile would get access to more than 5 million mobile subscribers in the Netherlands.

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Liberty’s pay-TV and broadband providers in the U.K. and Germany could help Vodafone keep up with BT and Deutsche Telekom, the countries’ dominant landline carriers, according to Macquarie Group analyst Guy Peddy. “Vodafone is doing it from a defensive standpoint,” he said.

The structure of a deal has been evolving since late last year. While buying Liberty outright was Colao’s original idea, more recently his goal has shifted to acquiring the cable company’s western European assets, one of the people said.

Quadruple Play

As more consumers opt for single-provider packages of TV, landline, broadband Internet and wireless services, Vodafone and Liberty have moved into each other’s turf. After buying U.K.- cable operator Virgin Media Inc. and Dutch cable provider Ziggo NV, Liberty in April agreed to acquire its first wireless network on the continent, paying $1.4 billion for Belgian carrier Base.

Vodafone has bulked up in Germany, one of Liberty’s biggest markets, outbidding Malone for cable operator Kabel Deutschland Holding AG in 2013.

Malone has also been consolidating assets in the U.S. Liberty Broadband Corp. owns more than 25 percent of Charter Communications Inc., which agreed last month to acquire Time Warner Cable Inc. for $55 billion.

In the May 15 interview, Malone compared Vodafone to “a big banana in the jar” and highlighted the differences in how the two telecommunications groups are run.

“The question is: how do you get your hand out of the jar with the banana?” he said.

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