Vodafone Group plc’s Acquisition Targets Rated: British Sky Broadcasting Group plc & BT Group plc

A look at the companies that might be in Vodafone Group plc’s (LON:VOD) sights.

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vodafoneIt was announced yesterday that Vodafone (LSE: VOD) (NASDAQ: VOD.US) had acquired the Spanish broadband and TV provider Ono for £6bn. This should put Vodafone in a position to challenge Spain’s market leader Telefonica — which owns O2 — and help shore-up Vodafone’s slumping European revenue.

Could a UK acquisition be next on the cards? That’s certainly a rumour that’s been doing the rounds in the City this morning.

So, who might be the targets, and what might their strategic significance be?

Here are three companies that might be in the shop window:

Sky

skyVodafone already has a working relationship with Sky (LSE: BSY) after signing a deal to allow its 4G customers to view Sky Sports Mobile TV.

It’s obvious, as mobile data use rises, that the worlds of media and telecoms are rapidly converging. With the purchase of Ono, and previously Kabel Deutschland, Vodafone appears to be consciously expanding away from its core mobile business.

Telecoms groups are increasingly looking to sell their customers a range of services, including television and broadband, and such a move by Vodafone in this arena would curb BT’s (LSE: BT-A) dominance in the broadband arena.

Reportedly, “high-level” talks have taken place regarding a partnership between Vodafone and Sky, which appears more likely than an outright acquisition.

As of right now Sky isn’t for sale, but should BT win the bulk of Premier League rights for the 2015 season, then who knows?

BT

top1Of course, this is highly unlikely, but was nonetheless an idea floated by analysts this morning. Any such move would be astounding, but what would Vodafone get for their money?

BT’s fibre optic network would be a big attraction. One of the main things that made Kabel Deutschland appealing was its vast cable network, and Vodafone is currently building its own fibre broadband networks in Portugal and Italy.

Now, BT would be no small mouthful. In the event of a deal, BT’s asset base would act as collateral on Vodafone’s borrowings. For the rest of the money, Vodafone could turn to a rights issue, which may or may not be bad for shareholders, depending on your point of view.

Talk Talk

talktalk

Lastly there’s TalkTalk (LSE: TALK), which has a market cap of £3.3bn. At first glance, perhaps this makes the least strategic sense. So far Vodafone has been buying companies with their own networks, which TalkTalk doesn’t have.

However, installations of its YouView digital TV box — which combines freeview with catch-up and on-demand TV — have improved from 7,000 to 10,000 new homes per week. TalkTalk is the fastest growing TV provider in the UK, and on that basis would partially ascribe to Vodafone’s desire to become more ‘multi channel’.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark does not own shares in any company mentioned. The Motley Fool has recommended shares in British Sky Broadcasting.

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