Firms begin “early stage” discussions over possible “exchange of assets” although merger talks have been dismissed
Vodafone has today (June 5) confirmed it has begun “early” discussions with Virgin Media parent company Liberty Global over a ‘possible exchange of selected’ assets.
Details on those ‘assets’ are yet to be confirmed, but the announcement follows more than a year of speculation the UK mobile operator is exploring acquisition opportunities as it looks to expand its assets around quad play services (mobile, fixed line, TV and broadband).
Speculation has been rife about a tie-up between Vodafone and Liberty for months following a spate of mergers and acquisitions in the global telecommunications industry.
Vodafone is valued at around £60 billion while Liberty Global is valued at £29 billion. Shares in Vodafone rose 3.5 per cent in early morning trading following Malone’s comments.
The news comes just a month after Liberty Global chairman John Malone described the prospect of a Vodafone merger as a “great fit” for his company, prompting shares at Vodafone to jump 3.5 per cent.
Vodafone chief executive Vitorio Colao had also made it clear that Vodafone would be interested in a deal with Liberty at the “right price”.
“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,” said Malone.
“Is there a great fit in Germany? Absolutely. Is there a great fit in the U.K.? Absolutely. Is there a great fit in Holland? Absolutely. There’s the promise of creating enormous shareholder value if we could work it out.”
Liberty Global acquired Virgin Media in a deal worth $23 billion (£14.7 billion)in 2013. Liberty described Virgin as the world’s leading broadband communications company, covering 47 million homes and serving 25 million customers across 14 countries. It was also said to have held talks with Telefonica to acquire O2 UK, a deal which has since been agreed with Three parent Hutchison.
Liberty Global, whose home market is the US, owns Virgin Media in the UK, UPC in Ireland, Unity Media in Germany and Ziggo in Holland. It also agreed a deal to acquire Belgian telco, Base, for $1.5 billion last month. It had revenues of $18.2 billion in 2014 and a customer base of 27.3 million customers taking 55.9 million of its services. It made a loss of $695 million.
In the UK, Virgin Media had 3.1 million mobile customers as of March 31, with 4.45 million across the whole of Europe, and 4.57 across the globe.
Vodafone has previously held talks with BskyB in a bid to boost its broadband offerings.
The operator has made a number of major acquisitions in the UK in recent years, most notably its £1 billion capture of Cable and Wireless in 2012. The firm sold its 45 per cent stake in US operator Verizon Wireless, in a deal worth £84 billion in 2013, to free up cash to boost its network performance (Project Spring) as well as boost the number of services offered to customers.
Kantar WorldPanel consumer insight director Imran Choudhary said BT’s £12.5 billion takeover of EE had set off a “chain reaction in the channel, forcing Vodafone to act.
He added:”With BT having gone for EE, that put the pressure on the remaining carriers to safeguard their premium assets. Three have decided to pursue the purchase of O2 from Telefonica, which would make them the largest player within Mobile in the UK.
“This would leave Vodafone, frozen out and at risk from increasing threat of home service providers like TalkTalk and Sky, moving into mobile.
“If Vodafone doesn’t act, it could find itself further behind as converged quadplay deals are expected to take hold of the market in 2016.
“By partnering with Liberty Global across their mutual European markets, it could provide an instant access to platforms for both to take advantage of each other’s vast infrastructure without having to spend time and money in building up their own.
“Consumers can expect to see intense competition in the early stages post consolidation, as these new giants look to capture as much market share as possible in the short term by offering compelling propositions. In the long term however, with less competitors in the market, there will be less pressure to keep prices low as possible.”
Vodafone released the following statement:
VODAFONE ANNOUNCEMENT RE MEDIA SPECULATION
Vodafone Group Plc (“Vodafone”) notes the recent media speculation regarding a potential transaction between Vodafone and Liberty Global Plc (“Liberty Global”).
Vodafone confirms that it is in the early stages of discussions with Liberty Global regarding a possible exchange of selected assets between the two companies.
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.