Liberty Global’s share price rose by 4% after Macquarie Equities media analyst Amy Yong speculated that Vodafone could swap US wireless for the European cable operator.
Thursday, Liberty shares were up as much as 3.9% ($3 per share) to $79.14 each, before closing at $78.59, up 3.2% or $2.45 per share. Vodafone could use cash freed up by its exit from Verizon Wireless in the US, in which it holds 45% worth at least $125 billion.
In a research note, Yong speculated that Vodafone, which is in talks to sell its 45% stake in Verizon Wireless back to Verizon Communications for as much as $130 billion, could use some of that cash in a deal for Liberty Global. The cable operator has a market capitalisation of around $29.8 million. She said that Macquarie believes “the probability of a Vodafone-Liberty Global tie-up has somewhat increased near term.”
“Vodafone is clearly interested in cable assets, as seen by its recent bid for German operator Kabel Deutschland for US$10.1bn or ~14x FY2014 FCF/sh inclusive of synergies (expected to close sometime between 4Q13-1Q14). Given the need for scale and scarcity of European cable assets, there are likely significant synergies in a Vodafone-Liberty Global combination,” according to Young.
“Vodafone-Liberty Global could launch a MVNO partnership to leverage each other’s infrastructure and exploit the demand for convergent services in certain European markets including the UK, Netherlands and Germany. Penetrating the wireless market is a longer-term objective for Liberty, as it is currently launching mobile services via MVNO agreements across Europe. However, there may be some overlap: Vodafone has already acquired Cable & Wireless Worldwide in the UK and has made a bid for Kabel Deutschland in Germany. In addition, the Netherlands is a small market and Ziggo could be a more attractive acquisition target. A fixed-line deal with Fastweb in Italy could also present a tempting target for Vodafone.”
However, Young also notes there are some considerations that would prevent a near-term deal. In the first place, there could be huge regulatory issues in Germany about a possible merger of Vodafone’s Kabel Deutschland interests and Liberty Global’s Unitymedia and Kabel BW. The Düsseldorf higher regional court recently overturned the Bundeskartellamt approval of the Unitymedia-Kabel BW merger. Young also points out that capital returns including special dividends to Vodafone shareholders could take priority over any new acquisition or merger.
Broadband TV Views. Buying Liberty Global would make sense for Vodafone. The company needs to become less dependent on mobile communications only and has made some investements in broadband and IPTV ventures in the recent past.
With the acquistion of Kabel Deutschland, Vodafone is entering a new phase in this development and further acquistions, such as Liberty Global, can be expected.
However, competition watchdogs will observe developments carefully. Should Vodafone indeed make a bid for Liberty, the German regulators would certainly attach vewry stringent conditions on such a deal, such as the selling off of a number of assets.
Absorbing LIberty makes more sense than doing piece meal deals such as Ziggo or Fastweb, but from a regulatory point of view would be easier to complete.
