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Vodafone, Liberty Global end European tie-up talks

[LONDON] Vodafone and Liberty Global have abandoned talks about a swap of business assets in Europe's converging mobile phone, broadband and TV markets, they said on Monday, having failed to agree on valuations.

Vodafone, the world's second-biggest mobile operator, said in June it was considering swapping some assets with Europe's biggest cable company, but denied persistent rumours that the two were looking at an outright merger to enable them to better compete as mobile and fixed-line broadband markets converge.

Both sides confirmed on Monday that the negotiations had been terminated, without commenting further.

However, bankers said the logic of a tie-up between the two groups was intact and did not rule out the prospect of Vodafone feeling compelled to buy all of Liberty.

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Sources close to the discussions said the latest talks foundered on valuing the assets on both sides. "We have not got there today, but we are not closing the door on potential discussions in the future," one person said.

Vodafone was thought to have put a number of proposals on the table but was unable to bridge the valuation gap, another said.

Liberty Chairman John Malone, who saw the companies as a"great fit", had already said earlier this month they were struggling to progress with the plan, telling Bloomberg that"conceptually there could be some real value created but realistically we haven't been able to figure out a way to do that that's mutually successful".

Shares in Vodafone, which had fallen 10 per cent since the talks were revealed in June, were trading down 3.6 per cent at 210 pence at 1340 GMT, while Liberty Global's share price, down 8 per cent in the same period, was down 4 per cent at US$46.

An exchange of major assets between two companies of the size and complexity of Vodafone and Liberty Global was always seen as difficult to pull off, industry sources said.

The companies had overlapping businesses in seven countries, but an asset swap would only have been a game changer in Britain, Germany and the Netherlands, analysts at rating agency Moody's said. "However, regulatory issues in Germany, the strategic nature of the UK operations for both groups, and the availability of multiple mobile assets for Liberty in the Netherlands, made combinations in these three markets very challenging."

Deutsche Bank said it was pleased Vodafone had not rushed to do another fixed-line deal at any price, and was it was left with a potential opportunity to exploit overlap with Liberty on more attractive terms at a later date. "Vodafone's organic revenue trends and rating is likely to improve at a time when Liberty is finding the going tougher from the incumbents who are deploying more fibre," its analysts said.

One banker, who did not want to be named, said a full combination of Vodafone, which has a market value of US$88 billion, and Liberty, worth US$41 billion, made sense but it would take time. "Vodafone benefited the most from suspending talks at this stage; they'll be able to negotiate better terms down the line, especially if mobile valuations go up," he said. "Vodafone needs to wait for valuations of mobile and cable to converge." The companies have never specified which assets were being discussed, but bankers and industry analysts said in June the German and British markets would be at the top of the agenda.