Vodafone in Asset Exchange Talks With Liberty Global -- 2nd Update

By Simon Zekaria 

LONDON-- Vodafone Group PLC said Friday it is in talks with Liberty Global PLC over an "exchange of selected assets," throwing the two European powerhouses back into the center of a recent frenzy of European television and communications deal making.

In a release Friday, British telecommunications giant Vodafone said talks were in early stages, and it ruled out any discussions over a full-blown merger with Liberty Global, a U.S.-based cable operator controlled by John Malone and focused on Europe. In recent days, Mr. Malone publicly flirted with the possibility of such a tie-up, lifting Vodafone shares.

Vodafone, based in Newbury, England, didn't detail the discussions in terms of types of assets under consideration or geographic locale, except to describe them as in "early stages." It said there is no certainty that any transaction will result from the talks.

Liberty declined to comment.

Last month, Mr. Malone, the American billionaire media mogul and Liberty Global chairman, said Vodafone would be a "great fit" with his cable operator, which is the largest in Europe by number of subscribers.

Friday, shares in Vodafone--the world's second-largest wireless operator by customers--rose 1.4% in early trading, valuing it at GBP65.8 billion ($100.8 billion). Liberty has a market value of $46.2 billion.

Prior to Mr. Malone's comments, Vodafone Chief Executive Vittorio Colao had declined to comment on any talk of a deal with Liberty, while emphasizing Vodafone's "organic" growth strategy, based on heavy spending on wireless and fixed networks in Europe, diversifying its media offerings and growing its footprint in emerging markets such as India and South Africa.

European telecom and cable operators have embarked on a frenetic wave of consolidation in recent years, eager to benefit from the so-called "quadruple-play"--offering services that encompass fixed telephony, mobile, Internet broadband and pay-television. The packaged offerings are aimed at boosting subscriber revenue and winning consumer loyalty.

Over-the-top streaming platforms such as Netflix Inc. have also started to eat into their potential market, adding pressure to bulk up. The continent's telecom players have suffered in recent years from fragmented markets across Europe and slow growth, which hasn't picked up much since the depths of the global economic crisis and Europe's painful recession.

Liberty Global, with headquarters in both Englewood, Colo., and London, operates in some of Europe's biggest markets, including Germany, the Netherlands and the U.K., where it owns Virgin Media Inc. The lion-share of Vodafone's profit and sales also come from the continent, with a focus on Germany, Italy and Spain.

Liberty Global has been on the acquisition hunt in recent years to snap up cable operators in Europe, where it has the majority of its broadband networks. For its part, Vodafone has acquired fixed-line assets in Germany and Spain to shore up its flagging mobile business in Europe and bolster its position as a unified media player in a rapidly-evolving market of bundled services.

Liberty last month agreed to acquire its own mobile business to combine with existing cable operations through an offer for Base, the Belgian unit of Dutch telecom group KPN.

Talk of a Vodafone-Liberty deal in some form is nothing new, but analysts say tough trading for Vodafone in recent times--and a multibillion-dollar capital spending effort aimed at its networks--has raised pressure for a tie-up between the groups.

Write to Simon Zekaria at [e-mail]

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