Liberty Global Said to Be Close to Kabel BW Deal Approval

Liberty Global Inc. (LBTYA), the cable company controlled by billionaire John Malone, is likely to get regulatory approval this week to buy Germany’s Kabel Baden- Wuerttemberg GmbH, two people with knowledge of the matter said.

Germany’s cartel office told the involved parties in a letter yesterday that it is inclined to allow the deal, said the people, who declined to be identified because the deliberations aren’t public. The watchdog will announce its decision on Dec. 15, spokesman Kay Weidner said via phone today, declining to comment further.

Liberty Global bought Cologne-based Unitymedia for 3.5 billion euros ($4.6 billion) in November 2009 and proposed to buy Heidelberg-based Kabel BW for 3.16 billion euros. The deal would merge Germany’s second- and third-largest cable companies and an approval would mark the first time antitrust authorities allowed any of the larger cable operators to combine. The likely approval of the deal was reported earlier by Manager Magazin.

“Cable operators are still a relatively small part of the broadband market, and both Deutsche Telekom and Vodafone are introducing more competition in TV, so it’s not that surprising,” Stephen Wilson, a cable analyst for Informa Telecoms and Media, said in a telephone interview.

The country’s largest cable operator, Kabel Deutschland Holding AG, was blocked in 2004 from buying three other operators on concern is would quash competition. Wilson said an approved deal might open the door for Kabel Deutschland to acquire Berlin-based Tele Columbus GmbH and its 2.3 million subscribers, which UBS said last week could be worth as much as 600 million euros.

Cartel Discussions

Liberty Global and Kabel BW declined to comment on the specifics of their talks with the cartel office.

“We remain confident of a positive decision,” Manuel Kohnstamm, Liberty Global’s managing director of public policy, said via phone. “We are in a constructive dialogue with the cartel authorities.”

In Germany, cable companies operate in distinct regions and don’t compete with each other. Their main rival is Deutsche Telekom AG, which offers broadband, telephone and television services nationwide.

Kabel Deutschland rose as much as 6.1 percent to 40.66 euros in Frankfurt trading and was up 4.8 percent as of 4:45 p.m. Chief Financial Officer Andreas Siemen said Nov. 15 he hoped approval might improve the chances of further consolidation of the German cable industry.

Competition Concerns

The cartel office said on Oct. 28 it had concerns that the deal would exacerbate an already existing oligopoly in the country’s television market.

In a first round of concessions, announced the same day, Liberty Global said it would open the network to unencrypted digital free-to-air TV in Unitymedia’s territory and continue to allow this in Kabel BW’s region. The company also waived exclusivity with housing associations, which in Germany amounts to a large part of cable companies’ sales. On Nov. 3 the company said it didn’t have a “plan B.“

The company made additional concessions on Nov. 29, allowing termination rights, valid until Sept. 30, 2012, for housing associations with longer-term contracts that cover 280,000 dwelling units. The units represent 30 percent of a market segment where the cartel office had identified “competitive concerns,” Liberty Global said.

The North Rhine-Westphalia Media Authority and the Hesse Regulatory Authority for Commercial Broadcasting, in which Unitymedia operates, said the concessions were a “milestone on the path to viewer-friendly digitization and innovative infrastructure competition.”

Sky Opinion

Sky Deutschland AG (SKYD) and Deutsche Telekom are among companies that have expressed concerns about the deal. Sky noted Unitymedia customers’ lack of access to Sky’s high- definition TV channels, according to a report this month in digitalfernsehen.de, and the telecom operator has seen uptake of its broadband services slow down as cable operators often offer faster and cheaper internet. Unlike the cable companies, Deutsche Telekom is obliged to allow third-party phone and internet providers access to its networks.

Informa’s Wilson said the cartel office may have become more inclined to allow the deal as Deutsche Telekom reached deals with housing associations to provide television services. Deutsche Telekom aims to sell as many as 3 million TV packages by the end of next year.

As of end September, Unitymedia and Kabel BW had a total of about 7 million subscribers. Kabel Deutschland had 8.7 million.

To contact the reporters on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net; Karin Matussek in Berlin at kmatussek@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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