* Kabel Deutschland seeks binding bids in 2 weeks-source
* Anti-trust authorities to study any Liberty Global deal
* Liberty Global continues M&A spree in Europe
* Vodafone leverage lower than telecom peers
By Paul Sandle and Sophie Sassard
LONDON, June 18 Vodafone faces a battle
for Germany's largest cable company, Kabel Deutschland
, although rival bidder Liberty Global of
the United States has bigger regulatory and funding hurdles to
Liberty Global, which owns Unity Media, Germany's second
biggest cable operator, joined the race on Tuesday. It tabled an
85 euro a share offer, according to a person familiar with the
matter, days after the British mobile company said it was in
talks about a deal.
Vodafone wants to buy Kabel Deutschland so that it can offer
TV, fixed line and broadband to more of its mobile customers,
while Liberty Global wants more consolidation in one of its
best-performing markets. Vodafone offered about 81-82 euros a
share in cash, sources said last week.
Shares in Kabel Deutschland closed 3.7 percent higher at
85.51 euros, valuing the group's equity at 7.56 billion euros
A Liberty Global deal would be closely scrutinised by German
anti-trust authorities because the combined company would
control roughly 60 percent of the country's television market.
"Shareholders of Kabel Deutschland would have to consider
the possibility that a potential Liberty offer faces a lengthy
regulatory review with an uncertain outcome," wrote analysts
from Jefferies in a note.
Liberty Global's chief financial officer Charles Bracken
recognised the hurdle on June 12 when he told a Goldman Sachs
cable conference that while the industrial logic for
consolidation in Germany was compelling, regulatory opposition
remained a significant barrier to any deal in the near future,
according to a note from the bank.
Germany's competition regulator in February blocked Kabel
Deutschland's bid to take over smaller Berlin-based cable group
Telecolumbus for 618 million euros. In 2011, when Liberty bought
KBW, a regional player in the German federal state of
Baden-Württemberg, the regulatory review took nearly nine
A source familiar with the situation said Liberty has
already talked to the German antitrust office to discuss the
deal, but declined to elaborate. The deal may also get referred
for review by the competition watchdog in Brussels, which
reviews large deals in the European Union and those with
potential regional importance.
In prior German cable deals, regulators required remedies
like making it easier for housing associations to switch TV
providers and ending encryption of digital free TV programmes.
Liberty Global customers in Germany are in the densely
populated German state of North Rhine-Westphalia as well as in
Hesse and Baden-Wuerttemberg, while Kabel Deutschland is active
in the rest of Germany.
Liberty Global's Unity Media Kabel BW and Kabel Deutschland
hold about 15 percent of the German broadband market. With
cheaper prices and higher speeds, they have been winning
customers from Deutsche Telekom, which still has more
than 40 percent of the market.
Vodafone holds roughly 12 percent of the German broadband
market, and rents wholesale capacity from Deutsche Telekom to
provide the service to customers.
A source familiar with the situation said Kabel Deutschland
had requested binding bids in two weeks.
The ability of the bidders to fund a deal would also be
considered, the source added, pointing to concerns about
Liberty's finances given its recent deal-making.
Liberty, which is owned by U.S. tycoon John Malone, bought
Virgin Media in Britain for about $15.75 billion in February and
a 13 percent stake in Ziggo in the Netherlands for
633 million euros ($844.9 million) in March.
For its part, Vodafone can finance the offer since its
leverage is lower than telecom peers. But ratings agency Fitch
said that the group would be downgraded by one notch if it
acquired Kabel Deutschland without taking other measures to
Analysts also said on Wednesday that Liberty would be able
to reap fewer synergies from buying Kabel Deutschland than
Vodafone, possibly hurting the price the U.S. group could offer.
Will Draper, an analyst at Espirito Santo Investment Bank,
said for Liberty Global costs could be saved in areas such as
billing, customer care, brand, content and R&D that would be
worth as much as 8-10 euros per Kabel Deutschland share.
For Vodafone, synergies would be 16 euros per Kabel
Deutschland share, stemming from moving its broadband customers
in the Kabel Deutschland area onto the cable infrastructure.
"Other benefits which are harder to quantify are the
potential for cross selling services and the defence of its
mobile business against the possibility of a strengthened MVNO
(mobile virtual network operator) offer from Kabel Deutschland,"
Vodafone, Liberty Global and Kabel Deutschland declined to
comment on Wednesday.