Malone’s Liberty Global Is Hungry for More of Germany

Liberty Global appears headed for a battle with European wireless conglomerate Vodafone for the hand of the largest MSO in that country, Kabel Deutschland.

The Denver-based international cable giant made a $10 billion offer for Kabel Deutschland last week, days after Vodafone lobbed in a preliminary bid of $9.6 billion for the company. According to reports in the German press, that initial Vodafone offer was considered by the company to be too low. Vodafone is said to be considering raising its bid.

Kabel Deutschland, also known as KDG, is the largest cable operator in Germany, with 8.5 million customers. Liberty Global’s Unitymedia subsidiary is the second-largest MSO in Germany, with about 7 million subscribers.

Kabel Deutschland confirmed that it has received a preliminary offer from Liberty Global, but declined further comment.

Liberty launched its first bid to dominate the German cable landscape in 2001, when it attempted to buy Kabel Deutschland’s predecessor company, Deutsche Telekom. The Bundeskartellamt, Germany’s top regulatory agency, blocked the deal and forced DT to break up into three separate parts — Unity Media, Kabel BW and Kabel Deutschland. Liberty made a play for Kabel Deutschland, the bigger of the three MSOs, in 2010, but the cabler opted to conduct an initial public offering instead.

Later that year, Liberty Global purchased Unity Media for $5.2 billion and in 2011 purchased Kabel BW for about $4 billion, combining the two to form Unitymedia KabelBW, the second-largest MSO in the country.

Since that time, though, the regulatory environment has softened. In April, according to reports in the German press, Liberty was again talking to KDG officials about a possible deal.

Still, analysts that follow the stock don’t believe securing regulatory approval will be easy. In a research note, ISI Group analysts Vijay Jayant and David Joyce noted that the German Cartel office rejected KDG’s attempt to purchase the third-largest MSO in the country — Tele Columbus — when it found KDG’s remedies to gain approval insufficient.

A combined KDG and Liberty would create an MSO with about 15.5 million customers in Germany, and would further distance it from what would become the second-largest MSO, Tele Columbus, with about 1.7 million subscribers.

“KDG would be a good strategic fit, and bidding for it is worth a shot — at the end of the day,” Jayant and Joyce wrote. “It’s probably better to get a denial from the German Cartel office than lose to a competitor, as long as any breakup fee is not substantial.”

Liberty Global has been on an acquisitions tear of late. Earlier this month, it completed the purchase of U.K. cable company Virgin Media for about $16 billion and in March it purchased a minority stake in Dutch cable operator Ziggo for about $800 million.