ANALYSIS: Vodafone and Liberty Global: A defensive move?

02 July 2015 |


In early June, UK mobile giant Vodafone set the chins of the wholesale world wagging when it confirmed initial discussions with Liberty Global over a potential exchange of assets.

In a brief statement on its website, the British telco confirmed that it was “in the early stages of discussion with Liberty Global regarding a possible exchange of selected assets between the two companies”.

Despite confirming that “there is no certainty that any transaction will be agreed, nor is there any certainty with respect to which assets will ultimately be involved”, the news has already given the stocks of both companies a boost.

“Vodafone is perhaps likely to be the most keen of the two to secure a tie-up, and may settle for an asset swap as it looks to advance its strategy of offering converged mobile, fixed broadband and pay-TV offerings,” said Matthew Kendall, chief telecoms editor at the Economic Intelligence Unit.

A deal with Liberty Global would help Vodafone to better compete with rival BT which sits at the top of the UK mobile market. Vodafone is the UK’s number three mobile player, but BT’s planned merger with EE will bump Vodafone down to last place.

EE chief executive Olaf Swantee, said: “This looks to me like a defensive move by Vodafone. The BT-EE deal is clearly changing the market already.”

Vodafone has been boosting its mobile operations in Germany and Spain – with the acquisition of Kabel Deutschland and Ono last year – but its domestic operation has lagged behind.

The UK and Germany remain the two most important countries for both Vodafone and Liberty Global, and an industry banker told Reuters that he believed Vodafone’s main aim was to secure Liberty’s UK unit, Virgin Media, while Liberty had its eyes on Vodafone’s German operations.

“This deal is about swapping the UK with Germany,” the banker allegedly said. “Nothing else is relevant.”

Mike Rogers, analyst at IT and communications firm Megabuyte, agrees, adding that Liberty Global generates the majority of its revenues from Western Europe and that there would be a “clear fit between the groups’ UK, German and Netherlands operations”.

Vodafone has thus far quashed rumours of a full merger, stating that the company “is not in discussions with Liberty Global concerning a combination of the two companies”.

However, Augustin Eden, analyst at Accendo Markets, sees the initial talks as a signpost for more to come.

“One has to wonder whether this is somewhat of a warm-up act for a heightened display of affection,” he suggested.