UPDATE 3-Kabel Deutschland hikes payout amid talk of Vodafone bid

Wed Feb 20, 2013 10:37am EST

* To raise 2012/13 dividend to 2.50 euro/shr from 1.50

* Traders see as move to ward off possible Vodafone bid

* Q3 adj EBITDA 220.3 mln euros vs 219 mln expected

* Keeps 2012/13 outlook

* Shares rise 2.5 pct, outperform sector (Rewrites first paragraph, adds fund manager comment, detail, background)

By Harro Ten Wolde and Arno Schuetze

FRANKFURT, Feb 20 (Reuters) - Kabel Deutschland is to hike its dividend 67 percent in a move which some traders and investors saw as a first defensive jab to ward off a possible 10 billion euros ($13.4 billion) bid from Vodafone .

Germany's biggest cable operator said it would raise its payout to 2.50 euros a share for the year through March from 1.50 euros a year before, after the failure of its 618 million euros ($825 million) attempt to buy local rival Tele Columbus left it with surplus cash.

"This seems the first poison pill to avert a Vodafone takeover," a Frankfurt-based trader said on Wednesday. "The takeover battle has started."

Kabel Deutschland's success in the German broadband market has caught the attention of Vodafone, the biggest mobile operator in Germany, and the UK-based company has hired Goldman Sachs to advise on its options, a person with direct knowledge of the matter told Reuters on Tuesday.

Vodafone needs to expand into more profitable areas such as cable as it faces a squeeze between low-cost mobile challengers and telecom and cable rivals who are increasingly pushing discounted, all-included bundles of mobile and other services.

A spokesman for Vodafone declined comment.

The German group said it would pay a total dividend of around 220 million euros after its shareholders meeting in October. It also said it would invest an extra 300 million euros in the next two years in its network.

Some said its plan to spend the cash from the aborted Tele Columbus deal as quickly as possible could be a means to drive up its share price and make a bid less attractive for Vodafone.

"This could be the first step in a defence strategy," said fund manager Andreas Mark at Union Investment, which has 0.11 percent of Kabel Deutschland shares.

RAISE THE BAR

Mark noted that after the dividend hike, Kabel Deutschland shares would offer a yield of 3.7 percent.

"They have given a clear signal," he said.

The shares currently offer a yield of 2.2 percent, according to Reuters StarMine data.

Kabel Deutschland shares were 2.5 percent higher at 69.05 euros at 1345 GMT, at the top of a 0.1 percent weaker sector index. The company has an enterprise value including debt of around 8 billion euros and some analysts estimate Vodafone would have to stump up around 10 billion to secuure control.

"I think they (Kabel Deutschland) have to raise capex (capital spending) to keep growth going," said Robin Bienenstock, an analyst at brokerage Sanford C Bernstein. "But it does also raise the bar for Vodafone and Liberty Global," she added, referring to its main domestic rival.

Liberty Global's Unity Media brand and Kabel Deutschland hold about 13 percent of the German broadband market and have been winning customers with cheaper prices and higher speeds from Deutsche Telekom, which still has 40 percent of the market.

Kabel Deutschland Chief Financial Officer Andreas Siemen declined to comment on whether there has been any contact between the companies regarding a deal.

Asked whether the dividend hike was a defensive move against a potential offer, a Kabel Deutschland spokeswoman said only that the increase was facilitated by the company's improving results and the failure of the Tele Columbus bid.

Kabel Deutschland also on Wednesday posted a 10 percent rise to 220 million euros in earnings before interest, taxes, depreciation and amortization (EBITDA), excluding special items, for the three months ended Dec. 31.

That was at the high end of analyst expectations in a Reuters poll, which ranged from 217 million to 222 million.

Kabel Deutschland said it still aimws to increase sales in the current fiscal year by between 7.5 percent and 8.5 percent and expects yearly adjusted EBITDA of between 855 million and 870 million euros. ($1 = 0.7487 euros) (Editing by Hans-Juergen Peters and David Holmes)