Vodafone to buy Germany's biggest cable operator Kabel Deutschland in £6.6bn deal
Deal positions the mobile phone giant to become a 'triple play' provider
Tuesday 25 June 2013
Vodafone today looked to have triumphed in the battle for Kabel Deutschland after the German cable firm accepted a €7.7 billion (£6.6 billion) bid from the British mobile giant.
Vodafone is poised to complete its biggest acquisition in 13 years after the German cable firm Kabel Deutschland agreed a €7.7bn (£6.6bn) sale.
The deal looks to be a strategic shift for the FTSE 100 giant, which is set to become a "triple play" provider, offering pay-TV and fixed-line broadband as well as mobile.
Kabel Deutschland's decision to "welcome" Vodafone's €87-a-share cash bid appeared to have all but killed off the hopes of America's Liberty Global, which made an €85-a-share approach in cash and shares last week.
Analysts at JP Morgan Cazenove reckoned Liberty Global's willingness to up its offer "may be tempered by the significant regulatory risks".
Vodafone's chief executive, Vittorio Colao, said the deal would mean "unified communications services" for German customers who "increasingly access TV, fixed and mobile broadband services from multiple devices in the home and workplace and on the move" – a trend dubbed "convergence" by the telecoms industry. The British giant will have 7.6 million TV customers as well as 5 million in broadband and 32.4 million in mobile in Germany, and there would be "significant potential" to cross-sell the services.
Mr Colao played down suggestions this could mean Vodafone would move into pay-TV in Britain or other markets. He said the rise of "triple play" was "the beginning of a trend in consumer behaviour", but it was "not uniform" and varied from country to country.
Analysts at Espirito Santo bank have suggested that mobile companies need to act as they have fallen behind cable and pay-TV firms as customers embrace "triple play".
Telecoms firms are also under pressure as regulation has pushed down on prices. But JP Morgan Cazenove said it believed the Kabel Deutschland acquisition was "not primarily driven by the rise of triple convergence" and that the main attraction for Vodafone was savings from synergies. Jefferies investment bank flagged up concerns about the £6.6bn price tag for Kabel Deutschland, saying the "valuation is getting into stretch territory" as it was based on a high multiple of enterprise value compared with operating free cash flow.
However, Vodafone's chief financial officer, Andy Halford, insisted that the company, which famously overpaid when it merged with the German operator Mannesmann in a £112bn deal in 2000, was paying a "very fair price". He said there would be "unusually significant" savings worth €300m a year by 2017, and rock-bottom interest rates mean the cost of funding the deal is "very low".
Liberty Global, which recently bought Virgin Media for £15bn, declined to comment on its next move.
Jefferies noted Vodafone's acquisition remained provisional until offer documents were officially filed next month, but it said the British firm "will have carefully judged where to position its new offer".
Vodafone shares were virtually unchanged, rising 0.05p to 175.9p, as the market expected the takeover deal. Kabel Deutschland shares slipped 0.6 cents to €84.10, which appeared to suggest that another higher bid was not on the cards.
Meanwhile, in a further sign of consolidation across the European telecoms industry, O2 owner Telefonica sold its Irish business, O2 Ireland, for €850m to Hutchison Whampoa, owner of rival network Three.
Telefonica said it was keen to sell O2 Ireland to reduce its huge debt load.
Vodafone's bid for Kabel marked:
* The biggest takeover by a European telecoms bidder since the 2010 takeover of Weather by Russia's Vimpelcom
* The second biggest pure telecoms takeover by Brits since Vodafone bought Airtouch in June 1999 for $61.5m (£40m);
* The second biggest ever outright takeover of a German company since Vodafone bought Mannesmann for $171.9bn in 2000.
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