If Liberty Global wants a mobile operator to complement its Virgin Media cableco in the UK, it may have a choice of dance partners. According to reports, Telefonica has been courting the US group as a possible buyer for its O2 UK arm, whose takeover by Hutchison was blocked by competition regulators last year. But other reports, also sourcing unnamed company sources, claim that Liberty is back around the table with Vodafone to negotiate a UK merger.
A deal between Vodafone and Liberty has been reportedly on and off the table for a couple of years, and there has been persistent speculation about a full-scale merger of both groups, or of their operations in individual countries. They already have a joint venture in The Netherlands, where Liberty runs the Ziggo cableco.
Now, according to The Register, talks are taking place at Vodafone’s headquarters in Newbury, west of London, with only high-level executives from both firms allowed access. This could result in a JV like the Dutch one, or Vodafone could sell its UK operations to Liberty, allowing the US firm to support a quad play for Virgin and be a more powerful challenger to incumbent BT, which is developing its own quad play offerings thanks to its acquisition of UK mobile leader EE.
If it offloads its UK unit, which is only the third-ranked MNO in the country, Vodafone might then be free to take over Liberty’s German arm, said the report, though this would likely run into regulatory issues, given that Vodafone already acquired Kabel Deutschland (snatching it from under Liberty’s nose).
Reports of the latest negotiations have emerged just a few weeks after Vodafone CEO Vittorio Colao said an asset swap between the two companies was “an attractive combination and an interesting project”, though at the time he said there were no active talks.
And they come less than a week after reports of a possible Telefonica/Liberty deal. Given that BT was allowed to buy EE, Telefonica would have better prospects of selling O2 to Liberty for its Virgin subsidiary, than to Hutchison. The latter deal would have created a smaller player than BT/EE or Virgin/O2, but would have reduced the number of MNOs in the UK from four to three, and this is still often a sticking point for European competition authorities.
Although Telefonica has been expected to float a minority stake in O2 UK in an IPO, it may instead pursue the Liberty deal, according to Spanish business newspaper Expansion.