The chairman of Liberty Global has openly spoken about an acquisition of Vodafone in an interview with Bloomberg, triggering a 5% share spike at the UK operator.
John Malone, the cable veteran who founded Liberty, described Vodafone as a “great…
The chairman of Liberty Global has openly spoken about an acquisition of Vodafone in an interview with Bloomberg, triggering a 5% share spike at the UK operator.
John Malone, the cable veteran who founded Liberty, described Vodafone as a “great fit” for the cable group’s existing businesses in Germany, the UK and the Netherlands where he believed substantial synergies could be achieved.
In the past, Liberty had been satisfied to offer mobile services on top of its cable packages through MVNO agreements. Last month, however, it broke the mould by snapping up Belgian carrier Base to combine with Telenet, its local cable subsidiary.
While Malone saw the potential for some sort of tie-up, he was keen to stress that the dramatically different philosophies of the two groups could prove to be a stumbling block.
“You have a different view of how a large company should capitalize itself,” Malone told Bloomberg.
“Their philosophy is low leverage, low risk and high cash payout to their shareholders. I prefer to grow equity value.”
The contrast in capital structures is stark when comparing the companies’ respective debt piles. Vodafone now has a market capitalisation of US$97.5bn and net debt of US$34.6bn, operating with a BBB+ rating from Moody’s that is broadly 2x to 2.5x net debt-to-EBITDA.
Liberty has a market cap of US$43.3bn and its debt pile amounts to a similar size. It has a Ba3 rating and a 4.5x net leverage ratio.
Vodafone declined to comment on Malone’s interview. However, Vodafone’s CEO Vittorio Colao addressed the the speculation on Vodafone’s Q4 conference call.
“We look at assets, we look at countries and if we find things that make sense, whether it’s Liberty or Hellas Online or whatever, we look and consider,” Colao said.
“And if there aren’t, we continue with our organic strategy and we continue with our own Spring investment and our own commercial plans.”
In spite of their cultural differences, there has been speculation of a tie-up for some time.
Late last year, the British telco’s management reportedly held internal discussions on the financial and regulatory implications of a takeover, as well as the potential for investor support – with the first and third of these seen as particular obstacles.
Liberty Global has cable assets in seven European markets in which Vodafone already has a mobile presence. These include the UK and Germany, where Vodafone has already made convergence plays, respectively acquiring Cable & Wireless Worldwide in 2012 and Kabel Deutschland in 2013.
Any regulatory review would likely be cumbersome, with Vodafone operating in 14 European countries, Liberty Global in 13.
However, a deal could represent the kind of cross-border consolidation the European Commission has said it seeks to foster as part of the single telecoms market.
