Vodafone and Liberty merger talks making little progress

After several months of talks, Vodafone and Liberty Global have been unable to agree their mooted merger or exchange of European assets.

London-headquartered Liberty's US-based chairman John Malone said the two companies remained in deadlock about how to successfully create the value that both sides agreed was there, according to an interview the veteran magnate gave to Bloomberg.

Shares in Vodafone jagged down by 2.26% on the news to 215.50p by 1100 BST on Tuesday.

Malone said he did not believe Vodafone was likely to offer enough for an outright purchase of Liberty Global.

"Other than that, it’s a question of could you figure out some way to live together," he told the newswire, adding that a solution could still be found, despite the lack of real progress made.

Vodafone, which is being advised in the talks by UBS, said in June that was in talks with Liberty over a possible swap of selected assets that would allow them to better compete with rivals, but assured that it is not in talks about a full merger of the two groups.

Last month, Liberty CEO Michael Fries confirmed there was no timeframe to the Virgin talks.

Liberty owns a swathe of US cable operations, the UK's Virgin Media and other cable business in Europe and analysts have suggested that the asset swap discussions are “just the start” and could lead to wider negotiations.

On Monday, Goldman Sachs suggested a harsher European Commission stance on consolidation in the industry "could cause Liberty to wait and see what the outcome of the Italy/UK merger rulings are (not to mention potential concessions for Virgin Media from the proposed BT/EE deal) before moving ahead with a potential combination/asset-swap with Vodafone".

Also on Tuesday morning, the EC extended the deadline on the pending Liberty/BASE deal, which analysts said was another cautionary signal and could cast shadow on Telefonica's sale of its UK mobile network O2 to Hutchinson's Three.

“Liberty has effectively withdrawn from the combination with Vodafone," said Neil Campling, TMT analyst at broker Aviate Global. "It's a stalemate now, and the issues over the key markets are unlikely to be resolved."

He added that one upshot could see renewed focus on TalkTalk bid speculation, which would be supported by the reduced likelihood of a strong UK converged competitor emerging.

Atif Latif, director of trading at Guardian Stockbrokers, noted that last week that Deutsche Telecom said it would oppose a merger.

"We still see value in VOD as standalone entity. VOD still has the capability to look at other potential deal and we are encouraged by the opportunity of other M&A avenues - albeit may be on high side if forced to do a deal.

"We believe that management has the capability to meet targets and once they start to improve margin/top line growth performance, continue asset sales, a pick in in European mobile growth trends and with careful cost control represents compelling value."