Kabel Deutschland seeks to snap up east German peer
FRANKFURT (Reuters) - German cable company Kabel Deutschland (KD8Gn.DE) has agreed to buy regional player Tele Columbus for about 618 million euros ($786 million) including debt, snatching one of the last big targets left in the country's once-fragmented cable market.
Kabel Deutschland said on Monday that buying east German-focused Tele Columbus, which has been struggling under around 600 million euros of debt, would allow it to accelerate growth by tapping the region's relatively underserved markets for fast broadband and video on demand.
The deal will also keep a big player out of the hands of rivals, although it will have to pass competition regulators, which have thwarted big tie-ups in the past.
DZ Bank analyst Joeri Sels said the transaction was priced in line with recent deals in the sector. However, he added that broadband penetration rates had risen, reducing the additional revenues that could be gleaned.
"It's a 'nice to have' rather than a dinosaur-style event," he said, keeping his rating on Kabel Deutschland stock at 'sell'.
Kabel Deutschland shares were up 1.4 percent by 1025 GMT, in line with the German midcap index .MDAXI.
The German cable market was once one of Europe's most fragmented, with a proliferation of smaller regional players offering television and broadband services.
But private equity firms and companies like Unitymedia, owned by Liberty Global (LBTYA.O), and Kabel Deutschland have restructured the market by buying up smaller companies to create more efficient larger players.
Deutsche Telekom and Unitymedia were among the companies eyeing Tele Columbus as well, sources said last month.
Tele Columbus provides cable services to 1.7 million customers, mainly in Berlin, Dresden, Magdeburg and Potsdam.
Kabel Deutschland finance chief Andreas Siemen said meeting demand for services like fast broadband and voice on demand in east Germany could help to increase average revenue per user (ARPU) at Tele Columbus faster than Kabel Deutschland, which added about 1 euro annually.
"We can immediately start offering these kind of new services," he said.
The purchase price amounts to 603 million euros, plus accrued interest, bringing the total to 618 million euros as of December 31, 2011, the company said. The price includes full repayment of Tele Columbus's debt of around 600 million euros.
Kabel Deutschland paid about 7.6 times Tele Columbus's 2011 operating profit of 81 million euros. This compares to a factor of 10 paid by Unitymedia for its 3.16 billion euro acquisition last year of Kabel BW.
A big hurdle remains Germany's Federal Cartel Office, which has blocked deals among large players in the past.
For example, Kabel Deutschland tried to merge with Kabel BW and Unitymedia in 2004 to take on Deutsche Telekom, but was thwarted by competition authorities.
Some analysts, however, believe antitrust regulators are becoming more open to consolidation among cable companies, and they point to Unitymedia's acquisition of Kabel BW as evidence.
Tele Columbus is currently owned by funds including York Capital, Golden Tree Asset Management and Avenue. They took it over after the company defaulted in 2010 under a roughly 1 billion euro debt load, which was dumped on it by investor Scott Lanphere's Escaline group.
In the restructuring, roughly 100 creditors agreed to swap part of the debt for equity, pushing out Lanphere.