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Liberty Global chairman discusses potential tie up with Vodafone

Article By: ,  Financial Analyst
May 22, 2015 11:26 AM

International cable company Liberty Global could be considering a tie-up with Vodafone.

Speaking about the potential acquisition, chairman John Malone has indicated that the business move would be anything but straightforward.

"The question is: how do you get your hand out of the jar with the banana?" he said this week.

The Financial Times reports that Mr Malone was referring to a potential tie-up with the British multinational telecommunications company. By combining Vodafone and Liberty, the result would be a global giant with an enterprise value of more than £140 billion (£89.2 billion).

Although the resulting business would play a key role in selling pay-television, broadband and mobile phone contracts in the UK and Germany – as well as further afield – the deal would not be a straightforward acquisition. For example, it could fall through due to competition reasons in Germany, according to the Financial Times.

A change in thinking

Experts say that Mr Malone's discussion of a tie-up has indicated a change in thinking. It has been less than a year since he was talking about a push into content and some experts believed the company might try to increase its stake in ITV.

Analyst James Britton explains that Mr Malone's latest comments do not mean any offers should be expected, they do put "pressure on Vodafone's board" – particularly since Mr Malone has previously demonstrated his believe that consolidation will happen on both sides of the Atlantic.

Liberty Global has also made significant investment in cable acquisitions in Europe over the last five years. However, increasing numbers of consumers are using their mobile phones for communications and video streaming.

"Data traffic on mobile networks is probably ramping faster than people expected 12 to 18 months ago," Mr Britton explained. Vodafone seemingly fills this hole well – the company does not have a consumer broadband business in the UK – although it has promised to launch one.

A deal between Vodafone and Liberty would have obstacles to get past. For example, Mr Malone told Bloomberg that the companies have very different financial approaches. "Their philosophy is low leverage, low risk and high cash payout to their shareholders. I prefer to grow equity value," he explained.

On Thursday (May 21st), Vodafone shares closed on the London Stock Exchange at 242.95p – up from 239.3p at opening.

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