Hedge Fund Elliott Clings to Kabel Stock in Vodafone Buyout

Kabel Deutschland Holding AG (KD8) shareholder Elliott Management Corp. is holding out as Vodafone Group Plc (VOD) attempts to persuade investors to cash out so it can complete its takeover of the German cable company.

Elliott hasn’t reduced its 11 percent holding since September, when investors were asked to tender their Kabel Deutschland shares to Vodafone, the German company said at a shareholder meeting in Munich today. The hedge fund may be betting it can force a higher price from Vodafone using that strategy, a person familiar with the takeover offer said last month.

In Germany, investors can refuse to sell during a takeover attempt and ask for a higher price, leaving it to a court to decide on the stock’s value. Holders of about 77 percent of Kabel Deutschland’s shareholders accepted Vodafone’s offer, the Newbury, England-based company said on Oct. 7. All members of Kabel Deutschland’s board agreed to sell their shares to Vodafone as well, Chief Executive Officer Adrian von Hammerstein said today.

Investors voted at today’s meeting to accept a domination agreement, which would give Vodafone control of the company even though some shareholders are withholding their stock, as well as to accept a dividend of 2.50 euros a share, said Kuzey Esener, a Vodafone spokesman.

Vodafone expects to pay investors who accept the offer next week, the company said. Von Hammerstein will receive 6.6 million euros ($8.9 million) in the sale, he said. Because this is coming before the buyout offer closes next week, that means Vodafone will pay 84.50 euros a share, or 7.5 billion euros. Vodafone had agreed to cover the dividend if the deal closed earlier.

Bundled Offers

A spokesman for Elliott Management didn’t immediately respond to a call and e-mail seeking comment.

In addition to getting Kabel Deutschland’s 8.5 million customers, the deal will give Vodafone a way to expand sales, offering packages of TV, Internet and phone service. Vodafone CEO Vittorio Colao has said he plans to take this approach to the rest of Europe, betting that selling multiple services to a household will improve customer retention and increase monthly bills.

Kabel Deutschland shares fell 0.9 percent to 93.35 euros in Frankfurt. Vodafone rose 1.1 percent to 217.40 pence in London.

Germany is Vodafone’s biggest market, accounting for 18 percent of revenue, and has performed relatively well during a Europe-wide slowdown that’s cut sales and caused the company to report a 7.7 billion-pound ($12.3 billion) impairment on its businesses in southern Europe in the fiscal year ended March 31. German sales declined 4.6 percent that year compared to a 16 percent decline in Italy and an 18 percent drop in Spain.

Consolidation Wave

Europe is going through a wave of consolidation attempts as bidders take advantage of low valuations for telecommunications assets. Vodafone sparred with John Malone’s Liberty Global Plc for control of Kabel Deutschland. Liberty bought U.K. Internet and television provider Virgin Media Inc. in June and has been increasing its stake in Dutch cable-TV provider Ziggo NV, reaching 28.5 percent, according to a July 26 regulatory filing.

A month after Vodafone announced the deal for Kabel Deutschland, Spain’s Telefonica SA and Royal KPN NV of the Netherlands agreed to combine their German phone businesses.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Alex Webb in Munich at awebb25@bloomberg.net

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

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