Vodafone confirms talks with Liberty Global, but quashes talk of merger

Speculation about Vodafone’s future has intensified in the wake of a wave of consolidation in the telecoms sector this year

A fair-goer checks his mobile device in front of a Vodafone logo. (AFP/Getty)

Vodafone has confirmed that it is looking at swapping some European assets with John Malone’s Liberty Global cable empire but stressed that it is not exploring a full merger.

Mr Malone, dubbed the “King of Cable”, suggested last month that the pair would make a “great fit”, sparking speculation of a combination and putting a rocket under Vodafone’s share price.

But Vodafone, the world’s second largest mobile telecoms firms, said yesterday that, although there have been “early discussions” of an exchange of assets with the largest cable TV firm in Europe, this was the extent of the contact.

“There is no certainty that any transaction will be agreed, nor is there certainty with respect to which assets will ultimately be involved,” the firm said in a statement to the stock market. “Vodafone is not in discussions with Liberty Global concerning a combination of the two companies”.

Analysts have suggested Vodafone’s UK, Dutch and Germany businesses would complement Liberty’s Cable services and enable a combined group to bundle television and telecoms packages to customers. Firms in the sector are all hoping to boost profits and market share by providing a one-stop shop for pay-TV, broadband, landline and mobile services.

Speculation about Vodafone’s future has intensified in the wake of a wave of consolidation in the telecoms sector this year. Li Ka-shing’s Three is trying to buy O2 from Spain’s Telefonica for £10.25bn and BT is set to purchase rival operator EE in a £12.5bn deal.

Vodafone has a 23 per cent market share of the UK mobile market. If the combination of O2 and Three receives approval from regulators, the new firm will have a 40 per cent market share while EE’s share is 29 per cent.

“The mobile and broadcast landscape is changing rapidly and there is growing pressure on all key players to retain customers and eek out growth in mature markets by bundling services,” said Nick Jones of Cavendish Corporate Finance.

Analysts suggested yesterday that Vodafone could be considering swapping its UK and Dutch business for Liberty’s German operations. In the UK, Liberty owns Virgin Media, which has around 4.8 million cable customers.

Dan Ridsdale, of Edison Investment Research, said an asset swap “makes sense” and added that “the roll out of converged, ‘multi-play’ services…requires substantial investment, and neither Vodafone nor Liberty have the resources to execute this across their geographical footprint”.

Vodafone’s market cap is around £65bn ($100bn) and it serves 446 million mobile customers worldwide, from India to South Africa.

Liberty Global, which is controlled by Mr Malone through super-voting shares and makes 90 per cent of its revenue in Europe, is worth $46bn. Shares in Vodafone fell by 6.05p to 242.05p yesterday.

In an interview last month, Mr Malone compared Vodafone to “a big banana in the jar” and said: “The question is: how do you get your hand out of the jar with the banana?”

Analysts at Morgan Stanley have estimated that a full merger of Liberty and Vodafone would create £15.7bn in savings.