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Vodafone IS in discussions with Liberty Global - but there’s no merger on the table


Vodafone has today issued a statement on its ‘discussions’ with global cable giant, Liberty Global, which appears to be somewhere between a denial and a confirmation. It confirms that it is in the early stages of discussions with “Liberty Global regarding a possible exchange of selected assets between the two companies,” but maintains that “there is no certainty that any transaction will be agreed, nor is there certainty with respect to which assets will ultimately be involved. Vodafone is not in discussions with Liberty Global concerning a combination of the two companies.”

The ‘assets’ in question are thought to be one or more of Vodafone’s European networks. According to Ken Odeluga, a senior market analyst at Cityindex, “John Malone, owner of the ‘Liberty’-branded companies, and Charter Communications pretty much made it clear late in May that he was interested in all of Vodafone’s core European assets.”

For its part, Vodafone is clear that the companies are talking about asset ‘exchange’, so it appears most likely that Vodafone is after Virgin Media (the UK cable company) and might therefore be ready to give up its German cable holding, Kabel Deutschland, which Vodafone bought in 2013 for $10 billion, in exchange. Liberty already owns Unitymedia, the second largest German cable network, so Kabel Deutschland, the biggest, would be a welcome addition.

For Vodafone, Virgin Media would give it the substantial UK fixed line and video arm it’s thought is absolutely necessary in today’s communications market.  With the UK seeing the convergence of its fixed mobile markets Vodafone is being urged to move fast.

The industrial logic of Vodafone adding more fixed infrastructure to its holdings as it increasingly competes against ‘multi-play’ offers from other players - with major rival BT buying up EE, now the UK’s largest mobile network - has been the subject of much speculation with many observers predicting a merger.

One UK analyst outfit, CCS Insight, has long been highlighting the multi-play imperative in the UK market and says the ability to offer multiplay products is now the principal driving force.

“Companies are scared of missing out on a huge opportunity,” said Paolo Pescatore, director of multiplay and media at CCS Insight. “With consumers telling us that it is more convenient and better value to buy broadband, mobile, TV and landline access from one company, incumbent providers that can offer all these services are in the perfect position - it's little wonder we're seeing a frenzy of M&A activity as leading players scramble to secure these assets.”

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