Vodafone explores a giant merger

VODAFONE Group is exploring a combination with John Malone’s Liberty Global that would create Europe’s largest phone, internet and TV company, worth more than $130 billion (R1.435 trillion), people with knowledge of the matter said.

The British phone company is holding internal deliberations and analysing the financial and regulatory hurdles as well as investor support for a share-based transaction, the people said, asking not to be identified because the matter is private.

No formal negotiations with Liberty are under way, there’s no guarantee a deal will be reached, and valuation and regulatory issues remain key obstacles, the people said.

In particular, Vodafone has concerns about the combined company’s debt levels and the reaction of its own investors to a deal, one of the people said. Cable operator Liberty’s shares climbed 7.4 percent to $51.99 (R574) in New York on Friday. Vodafone shares closed up 2.9 percent in London.

The case for a combination has been strengthened after BT Group, the former UK phone monopoly, entered talks to buy either Telefonica SA’s O2 unit or EE, the wireless carrier coowned by Orange and Deutsche Telekom, two of the people said.

The likelihood of a deal has also increased as Vodafone bolsters its fixed-line operations and Liberty moves towards offering mobile services in some markets, they said.

While Vodafone is examining several options in the wake of BT’s negotiations, Liberty remains the likeliest partner for a transaction, one of the people said.

Liberty, which owns Virgin Media in the UK, has a market capitalisation of $39.4bn and $41.1bn in total debt after a series of European acquisitions, according to data compiled. – Bloomberg