Vodafone Weighing Takeover of Malone’s Liberty Global

By With assistance from Dinesh Nair

Photographer: Jason Alden/Bloomberg

A Vodafone store in London in 2010.

Vodafone Group Plc (VOD) is exploring a combination with John Malone’s Liberty Global Plc (LBTYA) that would create Europe’s largest phone, Internet and TV company, worth more than $130 billion, people with knowledge of the matter said.
The British phone company is holding internal deliberations and analyzing the financial and regulatory hurdles as well as investor support for a share-based transaction, the people said, asking not to be identified because the matter is private. No formal negotiations with Liberty are under way, there’s no guarantee a deal will be reached, and valuation and regulatory issues remain key obstacles, the people said.
In particular, Vodafone has concerns about the combined company’s debt levels and the reaction of its own investors to a deal, one of the people said. Cable operator Liberty’s shares climbed 7.4 percent to $51.99 yesterday in New York. Vodafone shares closed up 2.9 percent in London.
The case for a combination has been strengthened after
BT Group Plc, the former U.K. phone monopoly, entered talks to buy either Telefonica SA’s O2 unit or EE, the wireless carrier co-owned by Orange SA and Deutsche Telekom AG, two of the people said. The likelihood of a deal has also increased as Vodafone bolsters its fixed-line operations and Liberty moves toward offering mobile services in some markets, they said. While Vodafone is examining several options in the wake of BT’s negotiations, Liberty remains the likeliest partner for a transaction, one of the people said.

Photographer: David Paul Morris/Bloomberg

John Malone, chairman of Liberty Media Corp.

European Assets

Liberty, which owns Virgin Media in the U.K., has a market capitalization of $39.4 billion and $41.1 billion in total debt after a series of European acquisitions, according to data compiled by Bloomberg.
Vodafone, which has a market value of about 62 billion pounds ($97 billion), has been adding cable assets across Europe as the telecommunications market moves toward bundled packages combining TV, phone and broadband services. After agreeing to buy Germany’s Kabel Deutschland Holding AG for 7.7 billion euros ($9.6 billion) last year, it acquired Grupo Corporativo Ono SA of Spain. Chief Executive Officer Vittorio Colao, when asked in September whether Liberty Global would be a good fit for the wireless carrier, said he would consider buying it “for the right price.”
Representatives for Vodafone and Liberty declined to comment.

Boosting Consolidation

European regulators may be open to a transaction that would boost consolidation within the region’s telecommunications industry, the people said.

Photographer: Antonio Heredia/Bloomberg

Vodafone Group Plc Chief Executive Officer Vittorio Colao, when asked in September... Read More

Newbury, England-based Vodafone, and Liberty -- whose controlling shareholder is American billionaire Malone -- may have to sell assets in countries such as Germany if a deal goes ahead, the people said. Kabel Deutschland is Germany’s largest cable operator, while London-based Liberty’s Unitymedia KabelBW unit accounts for about 18 percent of its global revenue.
Still, Liberty Global’s co-Chief Financial Officer Charles Bracken said this month regulators would probably give their permission if Vodafone tried to buy its German business.
In the U.K., where Liberty sells TV and broadband services through Virgin Media, Vodafone is facing the prospect of a much larger competitor that would provide bundled services. By buying EE or O2, BT would add wireless services and a large customer base to complement its existing broadband and TV.
Vodafone and Liberty have been competing to acquire European telecom assets. Liberty made a preliminary offer for Kabel Deutschland in May last year, before being outbid by Vodafone. The company also said in March that it plans to offer mobile-phone service to customers in Europe through wholesale agreements, stepping up its rivalry with Vodafone.
The British firm has cut debt and paid out $82.5 billion to shareholders after selling its $130 billion stake in U.S. operator Verizon Wireless this year. It had 5.9 billion pounds in cash at the end of September.