Vodafone/Liberty Global: punted
German deal should herald the end of the telecoms-cable megamerger
Vodafone’s chief executive last year described a joint venture with Liberty Global in the Netherlands as forming the “dream team”, like uniting “Messi and Ronaldo”.
For years, investors in the UK mobile operator and the US cable giant have been beguiled by the prospect of a fully-fledged merger. The motivation is the opposite of the typical football club owner: not expensive trophy assets but returns from deep cost savings.
Vodafone on Friday confirmed that talks were back on, though only over “certain overlapping continental assets owned by Liberty”. Even this deal — said to focus on the possible sale to Vodafone of Liberty’s cable assets in Germany and eastern Europe — is not insignificant. The German unit makes almost $2bn in annual earnings before interest, tax, depreciation and amortisation. A typical multiple for deals in the sector values it at about $23bn.
It could also just be more tidying before a bigger deal. A series of smaller moves in Europe — including Liberty’s pending $2bn sale of its Austrian business to Deutsche Telekom and last year’s Dutch deal — have been seen as a way of decluttering and removing potential regulatory objections to a broader tie-up.
Despite chief executive Vittorio Colao’s flowery football analogies, the UK group always seemed less enthusiastic about a merger. Form can vary: Cristiano Ronaldo’s goal scoring has disappointed at Real Madrid this season, while Vodafone has beat profit expectations handily. Last November, it lifted its forecast of annual ebitda growth to 10 per cent from 4-8 per cent previously. Signs that it is doing better in battling European incumbents argue against a transformational deal, with the very different, debt-fuelled Liberty. Liberty’s share price has struggled, further complicating the maths, though it has enjoyed a stronger start to 2018.
Liberty is not abandoning Europe altogether. Its Virgin Media subsidiary in the UK is performing well. But the chances of the big deal have faded. Meanwhile, the growth opportunities in the US, perhaps via a deal with Sprint or Altice USA, look intriguing. As Super Bowl weekend approaches, it is time to look for opportunities at home.