Vodafone said discussions with Liberty Global on a possible asset swap have ended, but analysts say a deal between the two companies still remains a "distinct possibility.
According to a research note from Jefferies International, the wording of the Vodafone announcement implies that discussions had not reached an advanced stage.
"This announcement creates no restrictions on restarting discussions. We continue to believe a takeover of Liberty by Vodafone remains a credible scenario. Towards that end, Vodafone's primary objective now has to be improving operating trends with a view to improve the stock's rating. We believe Liberty has a strong stand-alone case," the analysts said.
Vodafone and Liberty Global confirmed in June that they were in the early stages of discussions regarding a possible exchange of selected assets between the two companies. At the time, the UK-based company said it was not in talks on a possible combination of the two companies, even though Liberty Global chairman John Malone had previously described a tie-up between the European cable giant and the mobile operator as a "great fit".
Earlier in September, Malone admitted that his company was no closer to agreeing on an asset swap with Vodafone after more than three months of talks. He told Bloomberg that discussions had failed to identify realistic goals that would generate suitable value for the shareholders of either company.
According to Reuters, the talks collapsed because the two companies could not agree on the valuation of assets on either side. However, sources told the news agency that the door has not closed on potential future discussions.
Indeed, Jefferies said Vodafone has weak standalone prospects and still sees strategic logic in Vodafone strengthening its asset base via a significant acquisition.
"We continue to believe that Vodafone acquiring Liberty is a plausible eventual outcome and that (for financial as well as political reasons) this remains the most credible deal scenario involving Vodafone and Liberty," the analysts said.
Paul Marsch, an analyst at Berenberg Bank, also told Bloomberg that he was not convinced there was real value for shareholders in an asset swap.
"We can never rule out a future deal, but for real value to be created it has to be a full-blown merger on a nil-premium basis where both sets of shareholders get upside from the significant synergies," Marsch told the news agency.
Vodafone has been on a mission to strengthen its fixed-line base as it pursues a unified communications strategy. It has so far acquired Kabel Deutschland in Germany and Ono in Spain, for example. A merger with Liberty Global would help to fill some holes in the company's war chest, most notably in the UK where Liberty owns Virgin Media.
For more:
- see this Reuters article
- see this Bloomberg article
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