Vodafone (LSE:VOD) and Liberty Global (NASDAQ:LBTYK) have ended negotiations over a potential asset swap after nearly four months of dialogue.
Vodafone (LSE:VOD) and Liberty Global (NASDAQ:LBTYK) have ended negotiations over a potential asset swap after nearly four months of dialogue.
No reason was given for the termination of the discussions, but it is understood that talks fell apart on price.
Since the talks started, market observers had noted potential hurdles including expected regulatory challenges in the markets where the two companies overlap, the fact that the cable sector enjoys higher EBITDA multiples than mobile, differing debt profiles given Liberty Global’s private equity model, and also issues around tax.
Vodafone’s shares fell more than 3.5% in the wake of the news. A transaction could have involved Vodafone acquiring Liberty Global’s British cableco Virgin Media. That tie-up would have allowed Vodafone to offer the pure fixed-mobile convergence package that the combined BT-EE will be able to, providing BT can win over regulators.
RBC Capital Markets analyst San Dhillon wrote in a note to investors that Vodafone walked away from the talks “emphatically” and that it was a bold move by the mobile operator.
“If anything, if makes us more confident that Vodafone believes it has more time on its side, i.e. operational trends in its predominantly mobile business are moving in the right direction,” Dhillon said.
“Conversely, those of Liberty may have more headwinds, as growth moves from a volume orientation to a more price dependent one.”
In mid-September Liberty Global’s chairman John Malone had suggested talks were stalling after saying the companies had yet to figure out a “mutually successful” way to exchange assets.
He likened the discussions to a “tennis match” with the companies sharing ideas back and forth and that it was up to the investment bankers to see “if they can be creative, if they can come up with something that would work for everyone and get it by multiple objectives”.
Prior to the discussions beginning, Malone had compared Vodafone to “a big banana” in a jar.
“The question is: how do you get your hand out of the jar with the banana,” Malone asked in May.
Liberty Global have cable assets in seven European markets in which Vodafone already has a mobile presence. The largest of these are Germany, the UK and the Netherlands.
Discussions between the two companies were confirmed in early June. They were clear, however, that they were not discussing a full-blown merger – a transaction long pitched by advisers.