Advisers to US media giant Liberty Global are reported to be mulling over a potential takeover of Vodafone‘s UK arm, especially in the wake of chronic share price underperformance.
This could mean that as opposed to the present stock price in the mid 220ps we see a 285p target, if a typical 30% premium for a takeover materialises. If this is the case, it could very well be the last great European telecoms deal, and by implication, one of the deals of 2017.
Who is Liberty Global?
Liberty Global is a £21.5 billion market cap international telecoms and media giant, and the largest international TV and broadband group in the world. Virgin Media, Telenet and Mas Movil are some of Liberty’s most well-known brands.
The firm already completed a 50:50 joint venture with Vodafone’s operations in Netherlands last year, otherwise known as ‘VodafoneZiggo, to create a combined revenue of €4 billion.
Liberty also states on its corporate website that “opportunistic M&A” is part of it credo in terms of driving organic growth.
This idea also ties in with the aura of the swashbuckling billionaire CEO of Liberty Media John Malone, who has been described as the “Cable Cowboy”. He is also the biggest single landowner in the US. A deal involving Vodafone would be just up his street.
Who is Vodafone’s CEO Vittorio Colao?
As you might expect from someone who is a Harvard Business School graduate, Vittoria Colao is no slouch in the corporate space, and fully aware of his worth.
For instance, even before the row over executive pay become a front page issue, as long ago as 2012 Colao was happy to defend a £14 million pay packet. But if he is keen to extract value for himself, in recent years he may not have been seen to extract as much shareholder value for the company he works for.
At least though, Vodafone has been seen to be consolidating its business towards a more understandable structure, something which the proposed $23 billion merger between Vodafone India and Idea Cellular will mean that the former has its grip on a massive market, without previous headaches. This suggests that perhaps unlike many other CEOs of the top flight, he is perfectly happy to put his company’s interest necessarily before his own job security.
Vodafone: The most talked about
Another salient point to remember is that it is not only Liberty Global who have been looking at Vodafone in terms of M&A in recent times. The UK company remains one of the most talked about potential candidates among professional investors and hedge funds, as the feeling is that this has been a sleeping giant for too long. This is especially the case as the group effectively went ex-growth years ago and has reached something of a fundamental cul-de-sac.
As far as the price action of Vodafone has been concerned, it would finally appear that something positive is starting to stir. This is said in the wake of the price action of Vodafone shares in April. In the latter part of that month we were treated to an as yet unfilled gap to the upside through the 200 day moving average then at 213p.
This sharply changed the technical trend for the shares from bear to bull, with all the subtlety of a handbrake turn. Just as tellingly, despite several attempts, the stock has been too strong to fall even below the top of the chart gap at 215p. This state of affairs is unusual in terms of the implied strength, and only happens usually in the most robust of situations.
What can therefore be said for the near term is that since Colao effectively putting Vodafone in play at the beginning of the year, and with investors and fund managers obsessed with this company being taken over, we should see a reckoning relatively promptly.
On/off love affair?
It is no secret that the on/off love affair between Liberty Global and Vodafone has been that of the suitor wanting to make a move on the mobile communications giant. But somehow the time, the place and the cost not being quite right.
However, like all such affairs there has been a two-way interaction, one where Vodafone, aware of the interest has sought to get itself beach body ready for the may be ahead. This process has consisted of a streamlining and refocusing of the business, which even to the trained eye became very complicated. In particular, the situation in India was difficult until the latest merger with Idea Cellular.
But now all of this seems to be in order, and it should really be the case that Vodafone is much more palatable than it was when rumours of a possible deal with Liberty Media first saw the light of day.
The other point to remember is that both John Malone of Liberty Global and Vodafone’s Colao are giants of the their sector, and as the Financial Times has pointed out, only such a combination is likely to be strong enough to take on rivals in what are increasingly competitive times. Also in the Financial Times, as recently as February Colao stated that a deal between Vodafone and Liberty Global would be attractive, therefore suggesting now that something between the two companies may now be imminent is not exactly pushing the boat out.
The M&A clock has been ticking ever since Colao suggested in February that a “Liberty deal is still attractive”. This is all the more true now that the merger between Vodafone India and Ideal Cellular is moving towards completion, something which removes what would have been a potential headache for Malone or any other Vodafone buyer.
Considering that Calao has effectively been bending over for months in terms of accommodating the desires of a bidder, and the share price of Vodafone remains stubbornly stuck in the mud, one would investors from the institutional variety down will start demanding value extraction as soon as the summer of 2017 is over.