Vodafone Confirm Talks Over Possible Liberty Global EU Asset Swap

The prospect of mobile giant Vodafone gaining access to Virgin Media’s growing HFC cable and fibre optic (FTTP) broadband network in the UK has once again been raised. Voda has confirmed that it is in “early stage discussions” with Liberty Global regarding a “potential acquisition.”

In a statement Vodafone said that its discussions were focused upon the acquisition of “certain overlapping continental European assets owned by Liberty Global” and that they are “not in discussion with Liberty Global regarding a combination of both companies.” Liberty Global is the parent company of Virgin Media.

As we’ve said a few times before, such a deal would seem to make sense in the UK. Vodafone is strong in Mobile but their penetration into the fixed line market, especially in the United Kingdom, is still largely dependent upon Openreach’s (BT) existing FTTC / ADSL infrastructure.

The recent deal with Cityfibre to potentially rollout a 1Gbps capable Fibre-to-the-Home (FTTH/P) broadband network for up to 5 million UK premises by 2025 (here), starting in Milton Keynes (here), may give Vodafone an alternative but it will take a long time to grow scale and scale is what any serious challenger really needs.

On the flip side Virgin Media is spending £3bn to extend their ultrafast cable (HFC DOCSIS / FTTP) broadband and TV network to 60-65% of UK premises by 2019, although their Mobile (4G MVNO) platform is still dependent upon arch rival EE (BT). Meanwhile Vodafone has already shelved their UK based Pay TV (IPTV) plans but that wouldn’t be a problem if they got close to Virgin Media.

Vodafone Statement

Vodafone Group plc (“Vodafone”) notes the recent press speculation regarding a potential transaction with Liberty Global plc (“Liberty Global”).

Vodafone confirms that it is in early stage discussions with Liberty Global regarding the potential acquisition of certain overlapping continental European assets owned by Liberty Global.

There is no certainty that any transaction will be agreed, nor as to the terms, timing or form of any transaction.

Vodafone is not in discussion with Liberty Global regarding a combination of both companies.

Talks over the possibility of a mega merger or partial asset swap were first confirmed in June 2015 (here), although such a large deal would have created many complicated financial (Vodafone’s tax situation is tedious) and regulatory problems. In the end no agreement could be reached but both sides left the door open to future discussions (here). Last year the rumours started up again after various reports claimed that secret talks were on-going.

As Vodafone’s CEO, Vittorio Colao, said during early 2017, “It is still an attractive combination. The deal is not on the table. But … it’s an interesting project. If Europe wants the creation of real alternatives to incumbents [like BT, then] Vodafone and Liberty are the only two guys in town.”

However a related article in the FT (paywall) suggests that the new talks are focused on Liberty’s cable assets in Germany, as well as its holdings across Eastern Europe (i.e. not the UK). Lest we forget that Vodafone and Liberty Global only recently agreed to merge their businesses in the Netherlands via a 50:50 joint venture. Testing the waters, perhaps.

Liberty Global also recently agreed to sell its Austrian unit to Deutsche Telekom for €1.9bn. Meanwhile the uncertainty around Brexit in the UK could be giving Vodafone and Liberty Global additional pause for thought, perhaps encouraging them to look at more predictable markets first.