Vodafone Liberty Global Deal - Acquisition Closing in to Reality

Vodafone, the second largest mobile operator in the world, is close to clinching a game-changing deal to buy some of Liberty Global’s European assets. According to reports, the long-awaited plan of Vodafone is already in the final stages.  An announcement regarding the agreement is expected to be released next week. If both parties close the deal, the total worth of Vodafone Liberty Global transaction is estimated to be €16.5 billion, including debt.

In February, Vittorio Colao, Chief Executive of Vodafone, had declared that the said acquisition of the cable group could expand to the UK market. The discussions pertained to buying Liberty Global’s Unity media network in Germany, including assets in areas of Eastern Europe – a buyout that would make a much bigger rival to Deutsche Telekom in its own home market.

Part of the UK market is Virgin Media, a company owned by Liberty Global, but it’s outside the discussion. However, Colao was positive that it could still change and that European assets were on top of his list. While at the Mobile World Congress event held in Barcelona, Colao expressed that he should not get too personal with Deutsche Telekom’s head Tim Höttges, before stating that he was actually surprised that the chief executive of the largest telecommunication company in Europe had commented about the risk to competition.

The merger in the German market would mark as Liberty Global’s third move to restructure its cable properties in German-speaking areas in Europe. Liberty traded its Austrian cable operator UPC to T-Mobile Austria, Deutsche Telekom’s subsidiary, last December 2017.  

Liberty Global also owns UPC Romania, the second biggest cable company on the Romanian market. Last year, the company grew its number of clients by 4% to 1,345 million and its revenue increased by 6.5% to 734,4 million. On May 9, Liberty Global will release its first-quarter report upon closing of the US market, and Vodafone will report its yearly results on May 15.

In 2015, the two companies had previously talked about the deal but weren’t able to sign contracts due to value differences.

When the discussions were reported last February, Royal Bank of Canada’s analysts commented that the FTSE 100-listed company should pay around €20.7 billion in exchange for the European assets of Liberty Global.

The free cash flow of Vodafone PLC would receive a high boost if discussions of acquiring the large shares of John Malone’s European cable company Liberty Global close into a deal, as per Citigroup.

“We think a potential debt and hybrid funded deal to buy Unitymedia for €15.8 – 19.0 billion (10-12x FY19 OCF) would add €700-830 million or 12-15% to Vodafone’s free cash flow,” said Citi.

Citi had upgraded Vodafone from ‘neutral’ to a ‘buy’ rating on a lowered value of 220p.

“Vodafone’s markets remain competitive but Germany and Spain look to us to be structurally attractive for the long term, the UK is improving, the Netherlands may have stabilized and India could end up with a much more appealing market structure. On the other hand, conditions look set to get tougher in Italy and near term,” the broker added.

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