February 13, 2013 / 11:15 AM / 7 years ago

Vodafone weighs bid for Kabel Deutschland

FRANKFURT/LONDON (Reuters) - Vodafone (VOD.L) is considering a bid for Germany’s Kabel Deutschland KD8Gn.DE to expand the UK-based mobile company’s services in Europe’s biggest economy, according to a person familiar with the matter.

A woman walks past the logo of Vodafone company in Luxembourg in this picture taken on November 20, 2012. REUTERS/Francois Lenoir

No final decision has been made at Vodafone about a formal offer, the person said, of a deal which would enable the UK company to sell bundled services of mobile, fixed-line and pay-TV, which helps to boost customer loyalty.

Germany’s Manager Magazin reported on Wednesday that the head of Vodafone’s German operations had put forward a plan to buy the German cable operator to the group’s senior management.

The news comes only a week after John Malone’s Liberty Global (LBTYA.O) struck a deal to buy British cable group Virgin Media VMED.O VMED.L for about $15.75 billion in stock and cash.

Kabel Deutschland shares ended the day 8.7 percent higher at 69.17 euros, giving it a market capitalization of 6.1 billion euros. Including 2.8 billion euros in net debt Kabel Deutschland has an enterprise value of 8.9 billion euros ($11.9 billion).

Analysts polled by StarMine value Kabel Deutschland’s enterprise value at 10.8 times core profit. They expect Kabel Deutschland’s core earnings to reach about 970 million euros in the year to June 2014.

Vodafone and Kabel Deutschland declined to comment.

Vodafone, unlike its main competitors, owns mostly mobile operations in continental Europe, reducing its ability to offer combined services to consumers or businesses and offload data traffic onto its own fixed line networks.

Such considerations led Vodafone to buy British fixed operator Cable and Wireless Worldwide (CWW) last year.

In Germany, however, it owns the Vodafone D2 fixed line and broadband business. The business, previously known as Arcor, has about 12 percent of the broadband market, against 40 percent for Deutsche Telekom; the two companies are neck and neck in mobile.

Vodafone shares were down 1.1 percent to 172.1 pence.

Goldman Sachs and Bernstein Research analysts have written that Vodafone should look at buying cable assets in Spain, Germany and the Netherlands to keep up with competitors such as Telefonica (TEF.MC) and Deutsche Telekom (DTEGn.DE).

Vodafone has looked at Kabel Deutschland several times in the past since it would complement its mobile business in Germany, said a second person familiar with Vodafone’s strategy.

Analysts at Espirito Santo Investment Bank said they could see the rationale for such a deal.

“Vodafone said just last week at its results that M&A was still on the cards to support its convergence strategy, as with the recent CWW and Telstra deals,” analyst Nick Brown said.

However, he added that Vodafone’s fixed-line assets in Germany meant any potential deal would face scrutiny from antitrust regulators.


Jefferies said a bid from Vodafone could flush out a counter bid from Liberty Global, although the U.S. company had to make significant concessions to win regulatory clearance for its acquisition of KabelBW, another German cable operator, in 2011.

“Vodafone-Kabel Deutschland would elicit little regulatory concern in our view, not least as it would create a more viable competitor to Deutsche Telekom,” they said.

Cable operators Liberty Global, Ziggo ZIGGO.AS, Kabel Deutschland and Virgin Media VMED.O have been winning customers and investors with their expansion into broadband.

Their cable lines, designed to deliver TV to homes, have been upgraded to carry voice calls and Internet at speeds often five times faster than competing services from the telcos.

Germany’s cable market, which was once one of Europe’s most fragmented, still has a proliferation of smaller regional players offering television and broadband services.

Cable firms have made relatively little inroads into Germany’s fixed broadband market.

Kabel Deutschland, the largest cable operator with about 15 million of the 28 million homes passed by cable, said in December that the market penetration of it and its rivals in fixed line broadband was below 15 percent. ($1=0.7427 euros) (Reporting by Harro ten Wolde, Peter Maushagen, Philipp Halstrick, Leila Abboud and Paul Sandle; Editing by Jane Merriman and Mike Nesbit)

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