Could Sky fall to Vodafone?

The market is full of rumours that this or that that telephony operator wants to buy, merge or somehow absorb a rival or two, especially if that rival has TV-related assets.

Widely talked about are discussions between Vodafone and Liberty Global’s European operations. BT (the former British Telecom, and which used to own cellular operator O2) is looking to buy O2 back from Telefonica. If this doesn’t happen, the rumour mill suggests that BT might instead buy EE.

Meanwhile, other rumours suggest a Vodafone move on TalkTalk.

And while these rumours might resolve themselves over the next few days, it is a recognised fact that ‘quad-play’ is still the name of the game, and where a successful business needs cellular, broadband, land-line and TV if it is to retain customer loyalty and grow.

There are plenty of real-world examples of such M&A activity, whether from Numericable’s take-over of SFR, or Telefonica Deutschland’s €3.2 billion share issue to fund its acquisition of E-Plus, or Comcast’s purchase of NBCUniversal, or the current hot-scheme where AT&T is bidding for DirecTV.

Sky (whether in its ‘UK’ version, or enlarged ‘Sky Europe’ entity), has been frequently mentioned as a potential target is some of these rumours. Sky has a strong position in the UK, although it is much less influential in Germany or Italy. Nevertheless, Sky has an excellent reputation in TV aggregation and sports ‘rights’ as well as TV production, and cannot be immune from these discussions.

Sky could fall to a take-over from cellular giant Vodafone. The rationale is simple: Vodafone wants a quad-play offering, and is missing pay-TV in its portfolio of services. Moreover Vodafone has the cash, the muscle, the borrowing power and associated strengths in terms of managing a triple-play offering.

The received wisdom is that a sale of O2 back to BT might well take place, with Telefonica possibly retaining a 20 per cent stake in BT’s then enlarged and transferred business.

This move could start a ‘domino effect’ of M&A activity, and the investment bankers are opening their books to a flood of potential fees with all manner of permutations cited as making sense. And one such theory is that Sky lacks a cellular division, while Vodafone lacks a pay-TV offering: ‘Hey Presto’ as the City magicians might exclaim, and it is a marriage made in heaven!

Those who question the logic behind all or any of these rumours is to ask whether there are true synergies between content production and distribution. Besides, what if Alibaba’s billions were to enter the TV distribution market, or Facebook, or Amazon? Each has billions of dollars in terms of potential buying power. We can discount Google from this scenario because Brussels seems not to like the company!

The next few weeks promise to be fun.

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