Vodafone Makes $10B German Cable Offer

The battle for German cable superiority was kicked up another notch on Monday, with European wireless phone giant Vodafone proposing a $10 billion tender offer for Kabel  Deutschland, a deal that appears to trump an earlier bid by John Malone’s Liberty Global.

According to the deal, Vodafone would pay 87 euros per share ($113.95 each) for Kabel Deutschland, a nearly  40% premium to its stock price in February, when it first made known its interest in the cable company. While Liberty Global, which reportedly bid 85 euros per share for Vodafone last week,  could still come back with a higher offer, several reports in the German press cited sources that believed that was unlikely.

Liberty Global did not immediately return a request for comment.

Vodafone had earlier made a bid for KDG for a reported $9.6 billion that was rejected as too low. But Liberty Global’s interest appeared to be a sufficient catalyst for the wireless giant to sweeten its offer.

KDG is the largest cable operator in Germany with about 8.5 million customers. Vodafone is the second largest wireless carrier in the world with a  market cap of about 100 billion euros ($130.1 billion).

According to the deal, Vodafone will pay shareholders 84.50 euros ($110.69) in cash for every KDG share they own, and a dividend of 2.50 euros ($3.27) per share.

The deal is seen by some observers as a critical part in Vodafone’s ongoing strategy in Europe, where government regulation and fierce competition have been eating into wireless profits. A so-called quad-play with wireless phone, pay TV, high-speed data and wireline phone could give the company an advantage in Germany.

In a note to clients, Emeka Obiodu,  principal analyst in Ovum’s industry, communications and broadband practice, wrote that European telcos are reeling from a saturation of the mobile telecom market and steadily declining prices. Ovum expects mobile telecom revenue to decline about 1% in Germany between 2013 and 2018.

"… by adding Kabel Deutschland’s fixed broadband and pay-TV customers, Vodafone is hoping to tap into other sources of additional revenue in the market,” Obiodu wrote, adding that German broadband revenue is expected to grow 4% annually between 2013 and 2018.

If the KDG bid is successful, Ovum expects more deals on the wireless giant’s horizon.

“… the implication is that if Vodafone becomes Germany’s largest pay-TV provider, why would it not want to do the same in the UK, Spain, Italy or Netherlands? Watch this space,” Obiodu wrote.

In a statement, Vodafone said the deal will create a powerhouse in German telecom with annual revenue of about 11.5 billion euros ($15.1 billion). The company also sees more than 300 million euros (392.9 million) n cost synergies per year as a result of the deal, before integration costs.

“The combination of Vodafone Germany and Kabel Deutschland will greatly enhance our offerings in response to those needs and is consistent with Vodafone's broader strategy of providing unified communications service,” said Vodafone chief executive Vittorio Colao in  a statement.” The transaction announced today - which the Management and Supervisory Boards of Kabel Deutschland intend to recommend to their shareholders - will lead to the creation of an operator with significant competitive scale, attractive operating and capital investment efficiencies and a combined management team with expertise across all communications segments and technologies.”

Added Kabel Deutschland CEO Dr. Adrian v. Hammerstein:“Kabel Deutschland has evolved into one of the most dynamic players in the sector. Its high-performance infrastructure and successful strategy makes it ideally placed to continue returning above-average growth in a rapidly changing market. Kabel Deutschland and Vodafone are an ideal fit. Together, we have the opportunity to become Germany’s leading telecommunications and television provider and to create what for the German market is a unique, winning combination of fixed line and mobile communications.”

KDG’s board of directors recommended that shareholders approve the deal. Goldman Sachs and UBS advised Vodafone. Perella Weinberg Partners and Morgan Stanley served as advisers to Kabel Deutschland.