Vodafone share price down, confirms asset swap talks with Liberty Global

Vodafone Group Plc confirmed on Friday it has held talks with Europes largest cable operator Liberty Global Plc regarding a possible exchange of “selected” assets.

This sent Vodafone shares falling after rising 2% in earlier trade on speculations that the two companies were looking at a full-scale merger. However, the worlds second-biggest mobile operator dismissed such negotiations, which would have created a £100-billion global telecoms powerhouse.

Vodafone did not provide any information on the types of assets under consideration, nor their geographic locale, adding that the talks are in an early stage and that it remains uncertain whether they would yield any agreement. Liberty declined to comment.

Speculations about a possible tie-up between the two powerhouses emerged after Liberty Chairman John Malone said last month that Vodafone would be a “great fit” with his cable operator, emphasizing on the “substantial synergies” derived from an alleged merger with Vodafones western European business.

Prior to Mr. Malones public flirt with the mobile operator, Vodafones CEO Vittorio Colao had declined to comment on any talks on a deal with Liberty, underscoring the British companys organic growth strategy, based on large investments in wireless and fixed networks in Europe and bolstering positions in emerging markets such as India and South Africa.

A deal would be the latest in a series of M&As between European telecom and cable operators in recent years as they seek to benefit from offering bundled services including fixed telephony, pay-TV, mobile and Internet broadband. Vodafones European business would complement Libertys cable services on the continent, allowing for the offering of such bundles, also known as “quadruple-play”.

Liberty Global, headquartered in both Englewood, Colorado, and London, operates in 14 countries, including some of Europes biggest markets such as Germany, the Netherlands and the UK, where it owns Virgin Media Inc. The UK, Ireland, Germany and the Netherlands generate 40% of Vodafone’s sales, with Europe accounting for two-thirds of the mobile operators profit and revenue.

Some analysts say that Libertys Virgin Media could be of particular interest to Vodafone, which could in return part with Vodafone Netherlands and add cash to balance the enterprise values. Liberty has made it clear that it has no interest in the British companys emerging market businesses.

Others suggested that the possibility of a full-scale merger at some point is still on the table. “One has to wonder whether this is somewhat of a warm-up act for a heightened display of affection between the UK mobile operator and Europes biggest cable company,” said Accendo Markets analyst Augustin Eden, cited by Reuters.

Liberty Global Plc settled 2.19% lower at $54.60 on the NASDAQ on Thursday, valuing the company at $46.24 billion. Shares surged 6.21% to $57.99 in after-hours trading.

Vodafone Group Plc traded 1.75% lower at GBX 243.75 per share at 10:17 GMT in London, marking a one-year increase of 19.49%. The telecoms group is valued at £65.78 billion. According to the Financial Times, the 23 analysts offering 12-month price targets for Vodafone Group Plc have a median target of GBX 250.00, with a high estimate of GBX 300.00 and a low estimate of GBX 130.00. The median estimate represents a 0.77% increase from the previous close of GBX 248.10.