August 30, 2013 07.35 Europe/London By Robert Briel
Liberty Global’s share price rose by 4% after Macquarie Equities media analyst Amy Yong speculated that Vodafone could swap US wireless for the European cable operator.
Thursday, Liberty shares were up as much as 3.9% ($3 per share) to $79.14 each, before closing at $78.59, up 3.2% or $2.45 per share.
In a research note, Yong speculated that Vodafone, which is in talks to sell its 45% stake in Verizon Wireless back to Verizon Communications for as much as $130 billion, could use some of that cash in a deal for Liberty Global. The cable operator has a market capitalisation of around $29.8 million. She said that Macquarie believes “the probability of a Vodafone-Liberty Global tie-up has somewhat increased near term.”
“Vodafone is clearly interested in cable assets, as seen by its recent bid for German operator Kabel Deutschland for US$10.1bn or ~14x FY2014 FCF/sh inclusive of synergies (expected to close sometime between 4Q13-1Q14). Given the need for scale and scarcity of European cable assets, there are likely significant synergies in a Vodafone-Liberty Global combination,” according to Young.
“Vodafone-Liberty Global could launch a MVNO partnership to leverage each other’s infrastructure and exploit the demand for convergent services in certain European markets including the UK, Netherlands and Germany. Penetrating the wireless market is a longer-term objective for Liberty, as it is currently launching mobile services via MVNO agreements across Europe. However, there may be some overlap: Vodafone has already acquired Cable & Wireless Worldwide in the UK and has made a bid for Kabel Deutschland in Germany. In addition, the Netherlands is a small market and Ziggo could be a more attractive acquisition target. A fixed-line deal with Fastweb in Italy could also present a tempting target for Vodafone.”
However, Young also notes there are some considerations that would prevent a near-term deal. In the first place, there could be huge regulatory issues in Germany about a possible merger of Vodafone’s Kabel Deutschland interests and Liberty Global’s Unitymedia and Kabel BW. The Düsseldorf higher regional court recently overturned the Bundeskartellamt approval of the Unitymedia-Kabel BW merger. Young also points out that capital returns including special dividends to Vodafone shareholders could take priority over any new acquisition or merger.