If Vodafone Group Plc (VOD) and Liberty Global Plc (LBTYA) really want to dominate the phone, cable and wireless market in Europe, they should quit competing and try merging.
Vittorio Colao, Chief Executive Officer of Vodafone Group Plc.
The companies were among large cable and phone operators that gobbled up smaller players in more than $200 billion of European deals since 2011 to gain customers and market share. A merger of Vodafone and Liberty would be the next logical step, according to Bank of America Corp. Vodafone Chief Executive Officer Vittorio Colao told Bloomberg News last week that John Malone’s Liberty could be a good fit at “the right price.” A deal would create the biggest company in Europe selling bundled packages of mobile, phone, Internet and TV services.
A combined company could see a 3.2 percent jump in earnings per share from the deal by next year, were Vodafone to offer London-based Liberty a 20 percent premium, or more than $80 billion including debt, and pay for half in cash, according to Erhan Gurses, an analyst at Bloomberg Intelligence. Acquirers paid an average premium of 20 percent for cable assets in the last five years, he said.
“It makes a ton of sense because Vodafone just bought cable companies in Germany and Spainand there’s the sense that once you start on this track you don’t stop,” said Amy Yong, a media analyst at Macquarie Capital in New York. “At the end of the day, Malone is not emotional about business. He’s rational, and at the right price he would obviously let Liberty go.”
Selling mobile services alongside “fixed” offerings such as TV and Internet access in quad-play packages helps carriers generate more revenue and makes it less likely that a customer will leave. That’s vital for companies like Newbury, England-based Vodafone that have been struggling with oversaturated markets in Europe and sluggish economies that are eating into revenue. Even in the U.K., Vodafone’s home market, the wireless operator is only the No. 3 mobile provider.
John Malone, chairman of Liberty Media Corp.
Liberty, which has forged resale agreements with wireless providers, has also found that adding mobile service to its broadband and video packages cuts customer defections and increases sales, CEO Mike Fries said last week, appearing at the same New York conference organized by Goldman Sachs Group Inc. at which Colao spoke.
“It makes perfect sense why Vodafone would buy cable,” Fries said. “We’ve looked at mobile operations in a number of countries and, for us, it’s a different equation,” with more of a focus on resale agreements as opposed to purchasing mobile networks outright.
Vodafone and Liberty aren’t in discussions about a deal now, two people familiar with the companies’ plans said. That’s in part because Malone’s price is too high, one of the people said, asking not to be named discussing confidential information. Liberty, with a market value of $33 billion, considers Vodafone a good fit because of its European footprint, the other person said.
Vodafone, valued at $87 billion, is particularly interested in Liberty’s German unit, Unitymedia KabelBW, another person with knowledge of the company’s plans said.
Ben Padovan, a spokesman for Vodafone, and Marcus Smith, a Liberty spokesman, declined to comment on a potential tie-up.
Today, Vodafone fell 0.2 percent to 200.90 pence in London, and Liberty fell 0.4 percent to $43.31 in New York.
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