RBC Analyst Thinks Liberty Global Should Merge With Vodafone

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  • Vodafone Group Plc (ADR) VOD shares are down 17 percent since July 20.
  • RBC Capital Markets’ San Dhillon maintained an Outperform rating for the company, while reducing the price target from 260p to 255p.
  • A merger between Vodafone and Liberty Global plc LBTYA is now more appropriate, following the recent narrowing of the European valuations of the two businesses, Dhillon stated.

The European valuations of Vodafone and Liberty Global have narrowed since the time the two companies ceased asset swap talks in September 2015, analyst San Dhillon noted.

While Vodafone's shares have remained resilient, Liberty Global’s shares have come under pressure due to equity and credit market uncertainty. In EUR terms, Vodafone’s shares have outperformed Liberty Global’s shares by about 23 percent.

“This performance, the associated narrowing of the two European business multiples, expectation of merger talks resuming [according to Daily Mail, Dec 31, 2015] and Vodafone's recent European Medium Term Note [EMTN] program, has sparked investor interest in a possible merger,” Dhillon wrote.

He added, “As a result, we revisit our merger analysis and show that Vodafone can, and perhaps should, lead on a Liberty merger.”

Dhillon mentioned that this could be an appropriate time for Vodafone to lead the merger talked with Liberty Global, while citing the reasons as:

  1. “The relative performance of the assets may make both parties more amenable to a merger on what we see as fairer valuations”
  2. A deal would provide Vodafone a way to spin off an increasingly risky AMAP profile, primarily India
  3. The deal helps to solve convergence issues faced by both companies and would result in large synergies, estimated at about $30bn
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Posted In: Analyst ColorLong IdeasPrice TargetReiterationAnalyst RatingsTrading IdeasRBC Capital MarketsSan Dhillon
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