(Adds further reactions, updates Liberty's share price;refiled
to delete garbled phrase in paragraph 13)
* Talks on asset swaps to create bundles of services ended
* Could not reach agreement on asset values - source
* Door open to resumption of talks - source
* Shares in both companies fall 4 pct
By Paul Sandle
LONDON, Sept 28 (Reuters) - Vodafone VOD.L and Liberty
Global LBTYA.O 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.
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 percent since the
talks were revealed in June, were trading down 3.6 percent at
210 pence at 1340 GMT, while Liberty Global's share price, down
8 percent in the same period, was down 4 percent at $46.
CALLBACK
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 (XETRA:DBKGn) said it was pleased Vodafone had not rushed to
do another fixed-line deal at any price and 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 $88
billion, and Liberty, worth $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.
Vodafone and Liberty are first and second in the German
cable television markets, owning Kabel Deutschland and Unity
Media respectively.
The talks included Liberty Global's German cable assets, and
cable assets elsewhere in Europe, according to the person close
to the matter.
Analysts had said a tie-up in Britain, where Liberty owns
cable company Virgin Media, also made sense.
Vodafone and Virgin are facing a fundamental change in the
competitive landscape in Britain following broadband giant BT's
BT.L 12.5 billion-pound ($19 billion) deal to buy EE, the
country's biggest mobile network operator, from Orange ORAN.PA
and Deutsche Telekom DTEGn.DE . Virgin Media currently
piggybacks on the EE network to provide its mobile service.
Meanwhile Hutchison Whampoa 0001.HK , owner of the Three UK
mobile network has agreed to buy Telefonica's TEF.MC O2 UK for
10.25 billion pounds, a combination that would leave Vodafone as
the smallest of the UK's three remaining mobile network
operators.
($1 = 0.6587 pounds)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
BREAKINGVIEWS-Vodafone and Liberty may yet converge
ID:nL5N11Y1D9
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>