U.K. telecoms group Vodafone has confirmed that it is in discussions with John Malone’s international cable company Liberty Global regarding an asset swap. Vodafone added that it is not in talks with Liberty Global about a merger.
In late May, Liberty Global chairman Malone said that the two companies would make a “great fit,” which sparked a spike in the price of Vodafone stock. “We’ve looked at that from our side and there would be very substantial synergies if we could find a way to work together or combine the companies with respect to Western Europe,” he told Bloomberg. Vodafone shares rose 5.4% following Malone’s comments to 238.9p ($3.66); today they stood at 242.90p ($3.72), which represents a 2% fall on yesterday’s price, following news that no merger is in sight.
Vodafone’s cable business in Germany, Kabel Deutschland, may be the focus of an asset swap, while Vodafone may view Liberty Global’s U.K. cable company Virgin Media as one it would like to acquire.
Such asset swaps, effectively signaling Liberty Global’s exit from either the U.K. or German market, would allow it to scale up markedly in its quad-play offer in the territory where it also takes over Vodafone assets, which are particularly large in Germany where Vodafone Mobile posted €0.95 billion in EBITDA operating profits for the six months through March 31.
In Germany, “merging the cable operations of Liberty Global and Vodafone would create value, much more scale, advertising, brand building,” said James Barford, at Enders Analysis.
There could be “significant regulator issues,” however, in a merger of Vodafone and Liberty Global assets in Germany, where Vodafone bought Kabel Deutschland in 2013, and in the U.K. where both Virgin Media and Vodafone, after acquiring Cable & Wireless Worldwide, have a significant presence in the telecom business market, Barford added.