European operator Liberty Global scooped up a minority stake in rival Vodafone for more than $1 billion this week. While the company insisted the move wasn’t the set up for an acquisition play, analysts noted the transaction could lay the groundwork for a number of other potential strategic moves.
Liberty Global said in a press release it acquired a total of 1.3 million shares of Vodafone stock, netting it a 4.92% stake in the company. It added it would not seek board representation and was not planning to make an offer to outright buy Vodafone.
The move cost Liberty Global approximately £1.2 billion (around $1.46 billion), with the majority of this being funded through debt and the remainder coming in the form of £225 million in equity funding.
Mike Fries, Liberty Global’s CEO, said that the operator believes “Vodafone’s current share price does not reflect the underlying long-term value of their operating businesses, or their announced consolidation and infrastructure opportunities.” He added the equity funding Liberty Global used for the deal would be recouped through the sale of unspecified non-core assets.
Vodafone operates across 21 countries, with owned businesses in Europe, Africa and Asia. Meanwhile, Liberty Global is primarily focused on Europe, with operations in Belgium, Ireland, Slovakia, Switzerland, the U.K. and Netherlands. Its primary business in the U.K. (Virgin Media O2) is a 50-50 joint venture with Telefonica formed in 2021, while its Netherlands unit (VodafoneZiggo) is a joint venture with Vodafone which was formed in 2016. Liberty Global also announced a second U.K. JV with Telefonica last year.
Analysts at New Street Research indicated the share purchase was something of a surprise but should allow Liberty Global to make a decent capital gain over time.
They noted it currently appears to be an “opportunistic move with limited strategic implications,” but added there are some potential larger plays that could stem from closer ties between the two. Among other possibilities, they pointed to a prospective sale of VodafoneZiggo to Liberty Global or a combination of the operators’ assets in Ireland. The move could also “put pressure on Vodafone to become a wholesale partner” for Virgin Media O2, they said.
“We wouldn’t believe any of these are linked to this investment, but there are certainly still areas where Vodafone and Liberty could do business together, and if Liberty Global’s stake in Vodafone were to increase further and they do push for a Board seat in future, then these options could become more relevant in future,” the analysts concluded.