Vodafone, the world's second-biggest mobile telecoms company, said on Friday it was in talks with Europe's largest cable operator, Liberty Global, about an exchange of "selected assets" but was not discussing a full-blown merger.
"Vodafone is not in discussions with Liberty Global concerning a combination of the two companies," the company said in a statement responding to media speculation on Friday.
Vodafone's shares were down 1.7 percent at 243.8 pence by 1121 GMT following the statement.
The stock is still trading up 7 percent since May 19 when renewed speculation about a combination began, after John Malone, the U.S. 'King of Cable' and chairman of Liberty, said in an interview that the two companies would make a "great fit", as fixed and mobile telecom markets converge.
Liberty Global, which has operations in 12 European countries including Britain, Germany and the Netherlands, has a market capitalisation of $46 billion, while Vodafone's is 66 billion pounds ($102 billion).
Vodafone did not say on Friday which businesses were being discussed.
"There is no certainty that any transaction will be agreed, nor is there certainty with respect to which assets will ultimately be involved," the company said in its statement.
However, an industry banker said he believed that Vodafone's primary interest is in acquiring Liberty's UK arm Virgin Media, while the main attraction for Liberty is Vodafone's German cable business.
Liberty, which already owns Unitymedia, Germany's second-biggest cable operator, has long coveted its bigger rival Kabel Deutschland, which Vodafone bought in 2013 for $10 billion.
Meanwhile Vodafone in the UK is facing the rapid convergence of fixed line and mobile markets following broadband giant BT's $19 billion deal to buy EE, the country's biggest mobile network, with the avowed aim of building "a single, seamless converged platform."
"This deal (between Vodafone and Liberty) is about swapping UK with Germany. Nothing else is relevant," the banker said, adding that regulatory issues are not seen as insurmountable.
Accendo Markets analyst Augustin Eden said that a merger could still be on the cards some time in the future.
"One has to wonder whether this is somewhat of a warm-up act for a heightened display of affection between the UK mobile operator and Europe's biggest cable company," he said in a note.
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