Vodafone picks up on Liberty, but it's no booty call...

The City's worst kept secret is confirmed, as mobile giant Vodafone admits talks with Virgin Media owner Liberty Global. But it's not what you think...

by Andrew Saunders
Credit: Mnadi
Credit: Mnadi

The world’s second largest mobile operator, Vodafone, and veteran US entrepreneur John Malone’s Liberty Global (the biggest cable outfit in Europe) are looking at a potential tie up, the UK firm confirmed overnight.

But the talks are definitely not, insists Vodafone primly, about a full merger, but rather about assets swaps or transfers between the pair. Details of exactly which assets might be involved, or indeed the likelihood of any deal emerging at all, remain under wraps.

So for speculators who’ve been banking on a full takeover - especially since last week’s statement from Liberty’s billionaire US chairman John Malone that the pair were ‘a good fit’, such a relatively chaste arrangement looks like a disappointment. The wedding hats have been put back in the wardrobe for now and Vodafone’s shares dipped some 5p to just under 243p.  

Rumours that Liberty and Voda have been making eyes at each other have been circulating for months, but until now the British firm has refused to comment. So today’s announcement puts the gossip on a rather more official footing, but it also hints at the substantial hurdles facing attempts by the pair to hook up.

Here at MT we reckon that the full merger has proved too hard to manage for a number of reasons. To whit:

Geography. Liberty’s cable assets and Vodafone’s mobile networks in the UK, Germany and The Netherlands are bursting with merger-friendly quad-play ‘synergies’ (up to £1.4bn of them in the first year according to some drooling analysts). But this may not be enough to make Malone want to take on Vodafone’s substantial other businesses in India, Turkey and Africa, which he has previously made clear are of no interest to him.

Size. It would be one of the biggest mergers ever creating a £100bn telecoms powerhouse, so the financing requirements would be massive. Not that that in itself would be a clincher - the money can usually be found if the will to do the deal is there - but there are substantial differences of approach. In a nutshell, swashbuckling Liberty boss Malone likes plenty of leverage and debt, whereas Vodafone’s more conservative and corporate leadership does not.

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