Britain’s Vodafone plc has launched a takeover bid for Germany’s biggest cable operator, Kabel Deutschland, as part of its push to dominate media services in its biggest market.
Vodafone, a British cellphone company with wide international interests, confirmed Monday it will offer 87 euro per share for Kabel Deutschland, whose management accepted the terms.
The deal values the German company at 7.7 billion euro ($10.2 billion), or 10.7 billion euro when including 3 billion euro in net debt.
Vodafone Group Chief Executive Vittorio Colao said the deal aimed to tap growing German demand for fast broadband and data services.
“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 services.”
Kabel Deutschland Holding AG, which has more than 8 million customers, said that its management and supervisory boards “welcome this announcement.”
Vodafone made a preliminary approach to Kabel Deutschland earlier this month. That was followed by a preliminary takeover proposal from U.S. rival Liberty Global. But Liberty would have faced anti-trust concerns because of the rival companies it already owns in Germany. However, Liberty’s decision to wade in likely served to push up the price.
Though the reaction of the markets appeared to suggest the price was in line with expectations, analysts like Keith Bowman offered a note of caution, wary of Vodafone’s track record on mergers.
In 2000, the company took over Mannesmann AG in a stock-swap deal valued at $180 billion at the time, the largest corporate merger ever a price many analysts believed overvalued the German company.
European acquisition
“Vodafone’s European acquisition track record is not great, still marred somewhat by its previous over-payment for Germany’s Mannesmann, whilst rival cable group Liberty Global could still look to bid for Kabel,” Bowman said in a statement that followed the announcement.
Bowman also noted that another element of uncertainty comes from Vodafone’s tussle with Verizon Communications Inc., the New York-based company. Vodafone and Verizon together own Verizon Wireless, the largest cellphone carrier in the U.S. and a very profitable operation.
Verizon Wireless once had a policy of using its cash to pay down debt a policy that ended only in January. Analysts saw that debt reduction strategy as a way to squeeze Vodafone and persuade it to sell its 45 per cent stake.
New York-based Verizon Communications owns the other 55 per cent of Verizon Wireless and controls its operations.
“The deal comes at a time when the exact future of its U.S. Verizon business is still up in the air,” Bowman said, adding that economic “prospects for Europe continue to remain challenging.”
Ronald Klingebiel, a Warwick University professor who has consulted for the telecoms industry, said mobile companies such as Vodafone increasingly pursue “multi-play strategies,” to give customers broadband, fixed and mobile telephone lines and television. But he said that Vodafone might have approached Kabel Deutschland because its present systems, which rely on Deutsche Telekom’s fixed-line system were running at capacity.
