Talks between Vodafone and John Malone’s Liberty Global about potential asset swaps between the two companies have ended without agreement. It is believed the two could not agree on either the valuation or deal structure. That may well be because both parties have seemingly different interests. When the talks were first announced in June, Vodafone reps were keen to stress that a full merger was not on the table. Malone, on the other hand, has been vocal in his desire to add Vodafone to his company’s growing list of assets, describing Vodafone as a banana in a jar. “The question is: how do you get your hand out of the jar with the banana,” the billionaire media magnate was quoted as saying.
The enterprise value of a joint Vodafone-Liberty entity could come close to $200 billion. Liberty Global is the largest cable company in the world, with 27 million customers across 14 countries. Assets include Virgin Media, Unity Media and Ziggo. The company is looking to diversify its offering by owning more wireless assets so it can get into the quad play business, offeringTV, landline phone, broadband Internet and wireless service.
The company has been on an acquisitions tear of late. Liberty Global, along with Discovery Communications, closed a deal last year to acquire production powerhouse All3Media, which in turn this March closed a deal to acquire Sam Mendes’ Neal Street Productions. Liberty Global has since upped its stake in British broadcaster ITV to 9.9% from 6.4% as well as closing a deal to acquire Ireland’s TV3 in July.
Vodafone shares were down by more than 10 points to £205 on news of the collapse of the talks before rebounding slightly to 207. Had a deal been successful, it would have led to the creation of a dominant pan-European player with both mobile and fixed line cable capacity. That combination would have been compelling in a landscape that is becoming increasingly consolidated as deep pocketed telcos enter the content market with ambition and aggression. Across Europe a wave of telco consolidation is taking place, which will have long-term and strategic ramifications on the media and content business. The likes of Telefonica, Vivendi and Telecom Italia have all been engaging in asset divestment or acquisition in recent months as the digital landscape continues to take shape. The entry by deep pocketed telcos into the content business, not to mention the arrival of SVOD disrupter Netflix into Europe, has already had an impact on more traditional media giants such as BSkyB, which completed its acquisition of Sky Italia and majority interest in Sky Deutschland in November last year to create a European TV giant – now called Sky Europe- in a deal worth nearly $11 billion. That move was partly fuelled by the importance of economies of scale and sheer commercial mass in today’s (and tomorrow’s) competitive market.
Malone’s Liberty Media is the largest shareholder in Charter Communications, which earlier this year finalised a deal to acquire Time Warner Cable. It is no coincidence that a European-based company, Altice, also made its move at this current time to acquire Cablevision in the U.S.
Numerous challenges remain ahead of any potential resumption of the Liberty-Vodafone talks. Valuation, of course, is key, with Liberty carrying far more debt than Vodafone, which could prove problematic with some of Vodafone’s more conservative shareholders. Also, cable companies such as Liberty tend to trade for higher multiples against earnings than telcos like Vodafone, meaning Malone’s group valued its assets at a higher long-term quantum. Malone’s fondness for particularly complicated tax structures also remains a bridge that would need to be crossed.
Vodafone is also already investing over $10 billion to improve its networks across Europe, part of which will include acquiring fixed line businesses in Germany, Spain and the UK to combine mobile and cable offerings. Speaking earlier this month, Malone had indicated that he would not be willing to enter any merger as the minority shareholder. Liberty is also building up its own mobile and fixed-line telecoms services in Europe and Latin America.
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