Vodafone's Advantage in Liberty Talks
Vodafone goes into a fresh round of talks with Liberty Global with a stronger hand given the out-performance of its shares and nascent turnaround in its European business.
Bloomberg News reported that talks are back on over possible asset swaps in Europe. Vodafone said on Tuesday the talks only relate to a joint venture in the Netherlands. But it's a start and CEO Vittorio Colao must be careful not to overplay it when facing off against Liberty's billionaire backer John Malone.
Liberty's shares have fallen almost 20 percent since late September when the two abandoned negotiations over an asset swap, or broader tie-up, because of disagreements over valuation. The drop is down to investor stress about companies with high debts, weak results at Liberty's Dutch business, and uncertainty over a Latin American expansion. Vodafone's are up 9 percent as its network investment programme Project Spring led to underlying service revenue growth for the first time in four years.
Malone may be chastened but it doesn't mean he's desperate. Europe's biggest cable company, with activities in 12 countries, has other options to solve its lack of mobile reach as the region's consumers increasingly opt for all-included bundles.
In the Netherlands, Liberty's also been studying a bid for Deutsche Telekom's T-Mobile, and as a trade buyer should be able to outpay the private equity bidders. And in the U.K., its Virgin Media unit could get a good deal to expand in mobile from concessions offered by Hutchison's 3 as it tries to win approval for its purchase of Telefonica's 02.
Depending on the Dutch deal structure, both have much to gain though, and they should be brave about extending it to other countries. Vodafone and Liberty Global overlap in seven countries, the most profitable being the U.K. and Germany.
The strategic rationale for asset swaps remains clear for Vodafone: it needs Liberty's fixed and broadband networks to keep up with former monopolies such as Deutsche Telekom and BT Group. The problem is acute in the rapidly converging U.K., where Vodafone still doesn't have a TV product and only recently started selling broadband.
And Liberty needs mobile, Vodafone's traditional strength. There's a reason these talks don't want to go away.
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