‘Multibillion dollar corporate M&A’ might not sound very romantic, but in some respects mergers do resemble midnight elopements. After secret liaisons, whispered speculation and public denials, comes a grand announcement as the two firms/lovers ‘run off together’ to become one. Sometimes, though, they can’t help dropping a few hints first.
John Malone, the 74-year-old billionaire boss of Liberty Global, the world’s largest cable company and owner of Virgin Media, said in a Bloomberg interview that Vodafone would be a ‘great fit’ for it in Europe. Somewhat bizarrely, he then likened Vodafone to a ‘banana in a jar’.
‘The question is how to get your hand out of the jar with the banana,’ explained Malone.
Who said romance was dead? Vodafone boss Vittorio Colao was asked in an investor conference call yesterday whether he would consider a tie-up with Liberty Global. He rather coyly replied he would look at all deals that ‘make sense’. Get a room guys…
These sweet nothings follow months of speculation. The telecoms and media sector is in the throes of violent consolidation, as big players in mobile, TV, landlines and broadband attempt to become ‘quad players’ in all four categories to keep hold of fickle customers, while traditional media is under theat generally from techy upstarts like Netflix.
While struggling to achieve organic growth in its mature markets, Vodafone recently bought European TV providers Kabel Deutschland and Spain’s ONO as part of its quad play plans, while Liberty Global bought Belgian mobile operator Base last month for €1.3bn (£950bn).
With BT buying EE and Three owner Hutchison Whampoa acquiring O2, Vodafone and Virgin Media are arguably being left behind, so a deal sounds like a good idea, right?
Those hoping for a mega-merger happy ending might be disappointed, though. The sums involved are huge - Vodafone’s market capitalisation is £62.7bn and Liberty Global’s is approximately £28.8bn – and the overlap is only in Europe. Indeed, Vodafone only just got out of the US market in 2013 with the sale of its 45% stake in Verizon, so it’s hard to imagine it would want all of Liberty Global.
Besides, there are differences in how the two firms do business. ‘The principal barrier to us,’ Malone told Bloomberg, emphasising he wasn’t making a formal offer, is one of how the two companies capitalise themselves. ‘Their philosophy is low leverage, low risk and high cash payout to their shareholders. I prefer to grow equity value.’
It’s possible Vodafone could buy Liberty Global’s operations in Europe only, or the two firms could form an alliance rather than a full merger. Maybe it will all turn out to be nothing.
What’s for sure is that Vodafone shareholders will want an answer to the wider consolidation in the market. They seemed pleased today – shares rose 4.2% this morning to 236p. Who doesn’t like talk of a good wedding, eh?