Vodafone shareholders sceptical over Liberty Global buy rationale
Vodafone should not overreact to the prospect of fixed-mobile consolidation in the UK by buying Liberty Global, two top 20 shareholders said.
The UK operator should prioritise increasing returns to cover its dividend, the shareholders said. It should wait to see returns on Project Spring – a GBP 7bn network investment programme – before taking part in large M&A transactions, the first shareholder added. The project will be neutral to EBITDA by the end of Vodafone’s 2017 financial year.
An acquisition of Liberty Global would put too much pressure on Vodafone’s balance sheet, the shareholders said. An all-share deal would be difficult because Vodafone trades lower than Liberty Global, with Vodafone at 7x EBITDA and Liberty Global at around 10x EBITDA, they said.
Vodafone would see pressure on its Baa1 credit rating if it significantly increased leverage in order to finance acquisitions, according to Moody’s, as previously reported.
There are also questions around whether Vodafone needs M&A to address its lack of fixed-line offering in the UK, the shareholders said. Shareholders have raised the subject with Vodafone management this week after it was confirmed that BT is in talks with O2 and EE.
It is too early for Vodafone to embark on such a large acquisition to address problems that may arise from BT teaming up with a mobile operator, the first shareholder said. Talk of Vodafone buying Liberty Global – or vice versa – is premature, a second shareholder said.
A third shareholder added Vodafone should wait to see how the UK market for bundled offers (when mobile is sold with fixed telephony, broadband and TV services) develops before participating in consolidation.
But, Vodafone may have missed an opportunity to take part in fixed-mobile consolidation when Virgin Media was bought by Liberty Global last year, the second shareholder said.
Virgin Media would have been a better fit for Vodafone than TalkTalk, which does not mesh with its demand for high-quality networks, he said.
An acquisition of Tesco’s film and TV streaming service BlinkBox, however, would likely be supported by Vodafone investors, the second shareholder said. The two companies are reportedly in deal talks.