* Agrees 87 euro/shr deal for German cable operator
* Kabel Deutschland expects to recommend offer
* Two sources say Liberty unlikely to make higher bid
* Vodafone shares flat, Kabel Deutschland up 1.8 pct
By Kate Holton and Harro Ten Wolde
LONDON/FRANKFURT, June 24 Vodafone has
agreed to buy Germany's largest cable operator Kabel Deutschland
for 7.7 billion euros ($10 billion), adding TV and
fixed-line services to help defend against mounting competition
in its most important market.
In Vodafone's largest deal in six years and its second major
buy of a European fixed-line network in 12 months, the group is
offering a near 40 percent premium to Kabel's share price before
its interest first emerged in snapping up the target's 8.5
million connected homes.
The high price shows the desire of the world's
second-largest mobile operator to adapt in its core market of
Europe, where increasing regulation and recession have hit
revenue and forced it to write down the value of its assets.
The price was pushed up in the last week by an approach from
John Malone's Liberty Global, which could still return
with a higher bid, but two sources familiar with the German
group said they did not expect that to happen.
"Although you should never underestimate someone as
aggressive as Malone, it is very difficult to see how Liberty
could make a bid in cash that would be higher than what KDG
(Kabel Deutschland) already considers a good price," one of the
So-called "quad-play" services offering TV, broadband,
mobile and fixed-line telephony have caught on rapidly in
markets such as France and Spain, but the largely fragmented
German cable market is still some way behind, meaning a deal
could enable Vodafone to steal a march on rivals such as
Liberty's Unity Media and Deutsche Telekom.
With consumers wanting to watch TV and video on an array of
devices, cable assets have become more attractive as they can
provide internet services at speeds often five times faster than
competing services from traditional telecom companies.
"The value of infrastructure is now in focus with telecom
companies and cable providers increasingly in competition with
each other," Andreas Mark, a portfolio manager with Union
Investment, a shareholder in Kabel Deutschland, said. "Clients
want a stronger network and better performance."
Malone's Liberty Global has been the most active acquirer in
Europe in the last few months, buying Virgin Media and
increasing its stake in Dutch group Ziggo, stretching
its balance sheet and perhaps hampering its options in Germany.
Liberty could seek to merge Unity Media with Kabel
Deutschland, but this would likely be a more complicated deal
that would take longer to be approved by regulators.
One top-10 Vodafone shareholder said he worried it could
signal the start of a takeover spree by a group that does not
have the best track record in European dealmaking, given the
writeoff after its biggest-ever deal for Germany's Mannesmann.
"The deal is not large enough or expensive enough to be
really worrying, but I hope that this does not mark the start of
a string of acquisitions," the investor said.
Vodafone could look next at fixed assets in Spain including
cable operator ONO, or in Italy with broadband specialist
Fastweb, owned by Swisscom, analysts have said.
Vodafone Chief Executive Vittorio Colao said investors
should not read anything into the fact he had chosen to buy a
network in Germany rather than build or rent lines.
Colao was also forced to defend his decision in 2010 not to
buy Kabel Deutschland before it went public at 22 euros a share.
The CEO had said earlier this year he could afford to do
deals in Europe without having to sell his prized asset, a stake
in U.S. group Verizon Wireless, which partner Verizon
Communications has said it would like to buy in what
would rank as one of the world's biggest deals.
Vodafone, following up its acquisition of Cable & Wireless
Worldwide last year, said it would finance the new deal with
existing cash resources and banking facilities, taking its 2013
net debt to earnings ratio to 2.4 times from 2.0 times.
The agreed offer of 7.7 billion euros equates to 87 euros
per share is a 38 percent premium to where the stock was trading
before Vodafone's initial interest was reported in February.
One trader who asked not to be named said the offer,
Vodafone's biggest since a 2007 Indian acquisition, valued Kabel
Deutschland at 12 times enterprise value against 2013 core
earnings, a 35 percent premium to the sector. However, this
falls to 8.5 times when taking into consideration the synergies
Vodafone expects to extract.
The board of Kabel Deutschland said it expected to recommend
shareholders accept an offer creating a group with 11.5 billion
euros of revenue in Germany, from 32.4 million mobile, 5 million
broadband and 7.6 million TV customers.
Vodafone said it expected synergies from the deal to exceed
300 million euros a year before integration costs, by the fourth
full-year following completion. It also sees potential for
revenue synergies of 1.5 billion from cross-selling products and
improved customer loyalty.
Goldman Sachs and UBS advised Vodafone, while Perella
Weinberg Partners and Morgan Stanley worked with Kabel
Vodafone shares were flat in mid-morning trading. Kabel
Deutschland was up 1.8 percent at 86 euros.