23 April 2018
| Jason Mcgee-Abe
Reports over the weekend suggest that a blockbuster deal that would see Vodafone buy Liberty Global’s German and eastern European cable networks is imminent.
The deal, which could be work as much as €16.5 billion, including debt, would make it the largest European telecoms deal over recent years and has been labelled by some telecoms bankers as the ‘mother of all deals’.
Vodafone confirmed it was in talks with John Malone’s Liberty Global about buying some of the cable company’s assets in Europe back in Februrary, stating: “Vodafone confirms that it is in early stage discussions with Liberty Global regarding the potential acquisition of certain overlapping continental European assets owned by Liberty Global. There is no certainty that any transaction will be agreed, nor as to the terms, timing or form of any transaction. Vodafone is not in discussion with Liberty Global regarding a combination of both companies."
Tim Höttges, chief executive of Deutsche Telekom, declared in February that he would fight any such takeover. “My perspective is this deal is very unlikely to get approval. I find it from a competitive perspective unacceptable,” he said in answer to a reporter at a Telekom presentation in February. “The dominance in the TV market, combined with a telecommunication provider, is something I personally find very tricky for democracy.” Deutsche Telekom has since called for regulators to block the deal, arguing that it would create a monopoly in parts of the market.
In December 2017, Deutsche Telekom bought Liberty Global’s Austrian operation for €1.9 billion and last month Liberty Global was also said to be in talks with Swiss telco Sunrise Communications Group to create a competitor to Swisscom, suggesting the combined company could mirror its $3.7 billion joint venture between Ziggo and Vodafone in the Netherlands back in December 2016.
One of the core elements of this current deal, would be Liberty Global’s German cable subsidiary Unitymedia. Vodafone could create a heavyweight converged fixed-line and mobile operator going to head-to-head with Deutsche Telekom. Vodafone’s German cable network covers 13 federal states with Unitymedia serving the other three states. Vodafone and Liberty Global also have overlapping operations in further continental European countries including the Czech Republic, Hungary and Romania.
Broker Numis, in a note to its investors on Friday, said that Vodafone is in a good position to negotiate because it now has some “sizeable” assets of its own in Europe and “sensibly priced” wholesale access to third-party fixed-line networks. Numis added that it believes Liberty is showing “much more humility” than it did a year ago as the company is convinced that fixed line and mobile convergence is a certainty but does not work for cable networks that reach only a small proportion of each market.
“In Germany, Liberty's asset reaches just c.30% of all properties so we think Liberty believes it has to exit sooner rather than later, no matter how well this asset is growing currently,” Numis said.
“As a result of all the preceding points, we believe Vodafone will not overpay for Liberty’s asset in Germany (we think more than 10 times EBITDA is fair) and Vodafone will not have to also buy Liberty out of the Dutch market. In turn, risks that Vodafone will issue new shares or cut its dividend per shares are very low.”
Numis, did however, lower its valuation on Vodafone due to “numerous individually small reasons” such as higher estimates for spectrum costs. Overall, Vodafone spent the most amount of money for 5G spectrum alone, winning 3410 – 3460MHz licence for a total of £378,240,000. In a statement Vodafone said it would use the spectrum to "deploy 5G services, enabling Gigabit speeds and lower latency to enhance applications including connected vehicles and robotics, industrial automated systems, and virtual and augmented reality."