Vodafone ends talks with Liberty Global over asset swaps

Tuesday, Sep 29, 2015

Talks between Vodafone and cable company Liberty Global, owner of Virgin Media, have ended.

The pair had been in talks since June over combining their mobile and cable networks in the British, German and other European markets, either through asset swaps, a merger or a takeover.

Vodafone shares fell as much as 4pc in early trading.

Liberty owns Virgin Media in the UK and cable operators across Europe, and is controlled by the US billionaire John Malone. The Nasdaq-listed company had been seeking a way to combine its networks with Vodafone’s to offer full bundles of broadband, mobile and television services to consumers.

However, talks had stalled in recent weeks and the deal looked increasingly unlikely after Mr Malone said they "hadn't been able to figure out a way to [make it] mutually successful".

City sources told The Telegraph earlier this month the pair had hit a roadblock over the cable operator’s complex tax arrangements, although a Liberty spokesman today said tax losses were not the cause of the termination of the talks.

Liberty relies on Virgin Media’s billions in accumulated losses to reduce its tax burden, a priority for its libertarian founder throughout his long career in telecoms.

According to sources on both sides of the discussions, Liberty’s commitment to the strategy and therefore requirement to maintain control of Virgin Media was proving an insurmountable obstacle in what would have been a very complicated deal anyway.

A £140bn merger of the two companies would have created one of the largest deals in history, although the two companies had always said they had no intention to combine to create a global telecoms powerhouse.

“Vodafone and Liberty Global have overlapping businesses in seven countries but it would only have been in the UK, Germany and the Netherlands that asset swaps may have been a game changer," said analysts at Moody's.

"However, regulatory issues in Germany, the strategic nature of the UK operations for both groups, and the availability of multiple mobile assets for Liberty in the Netherlands, made combinations in these three markets very challenging.

“A full acquisition of one company by the other was unlikely due to the lack of overlap for large portions of their operations, the complexity of the deal that affects many jurisdictions, and the high amount of debt relative to their ratings that the two companies already carry on their balance sheets.”

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