Liberty Global Makes Bid for Kabel Deutschland
Liberty Global Plc (LBTYA) made a preliminary bid for Kabel Deutschland Holding AG (KD8), pitting the cable company controlled by John Malone against Vodafone Group Plc (VOD) for control of Germany’s largest cable provider.
Liberty Global made an offer for Kabel Deutschland, the Munich-based company said in a statement late yesterday without disclosing the price. Liberty offered about 85 euros a share, according to a person familiar with the talks. The proposal values the company at 7.5 billion euros ($10 billion) and consists of shares and cash, said the person, who asked not to be identified because the discussions are private.
Kabel Deutschland’s management, led by Chief Executive Officer Adrian von Hammerstein, favors Vodafone’s latest bid of 83 euros, which is all cash and may have better chances of being approved by Germany’s Federal Cartel Office, the person said. A new owner would gain 8.5 million paying households and potential customers for combined landline, mobile and TV subscriptions in Europe’s biggest telecommunications market.
“This is probably a tactical offer to push up the price and make it more difficult for Vodafone,” said Heike Pauls, an analyst at Commerzbank AG in Frankfurt. “Liberty is aware that the cartel office would at best approve their deal under very tough conditions.”
Marcus Smith, a spokesman for Liberty Global, declined to comment beyond the statement made by Kabel Deutschland. Simon Gordon, a Vodafone spokesman, declined to comment.
Kabel Deutschland was blocked by the antitrust regulator from buying Berlin-based cable operator Tele Columbus Group in February.
Liberty Global, which entered the German market with the acquisition of Unitymedia in 2010, was forced to take steps like removing encryptions and opening up contracts with housing associations to rivals when it added operator KabelBW the next year to form the country’s second-largest cable operator.
Regulators may approve a deal if Liberty Global agrees to concessions including opening up its network to rivals, Goldman Sachs Group Inc. analysts said in a note today, citing Matthias Kurth, the former head of Germany’s Federal Network Agency. Kurth last year became executive chairman at Cable Europe, a cable industry group whose members include Liberty Global.
Shares in Kabel Deutschland climbed 30 percent since Vodafone’s interest in the company first surfaced on Feb. 13 through yesterday. They rose as much as 4.3 percent to 86.02 euros and were up 3.8 percent as of 5:30 p.m. in Frankfurt.
Vodafone and Liberty Global both want Kabel Deutschland to expand their empires in Europe. Phone companies across the continent are bulking up their networks and adding services as they work to increase customer bills and loyalty. Bundles of TV, Internet and phone service are becoming increasingly popular, stoking deals and partnerships between carriers.
A bidding war for Kabel Deutschland could push Vodafone to offer as much as 90 euros a share following Liberty’s bid, Robin Bienenstock, an analyst at Sanford C. Bernstein, said today in a note. Kabel Deutschland sold shares for 22 euros apiece in its 2010 initial public offering.
“Companies are acting; their M&A will reshape Europe,” Bienenstock said. “Europe is rapidly moving towards a series of integrated duopolies with a punishing outlook for wireless-only companies.”
Liberty Global invaded Vodafone’s home turf in February, spending $16 billion in cash and stock to take over British cable-television provider Virgin Media Inc. in the largest media deal since 2007.
Liberty has also built an 18.2 percent stake in Dutch cable-TV operator Ziggo NV. (ZIGGO) Most of Liberty Global’s operations are in Europe, with about 90 percent of revenue coming from the continent, including operations in Belgium, Austria, Ireland and Switzerland. As part of the Virgin Media deal, Liberty Global is moving its headquarters to the U.K. from Englewood, Colorado.
Fitch Ratings said last week that Vodafone’s debt might be downgraded if it buys Kabel Deutschland. Vodafone Chief Financial Officer Andy Halford has said that he’d be willing to accept a lower rating for the right deal.
The company is rated four levels above junk by the main credit-rating companies, or A3 by Moody’s Investors Service and A- by Standard & Poor’s and Fitch. Liberty Global is rated lower, with Moody’s ranking it three levels below investment grade at Ba3 and Standard & Poor’s placing it four levels below investment grade at B+.
Telecommunications companies have commanded a 27 percent takeover premium in the past 12 months, according to data compiled by Bloomberg based on the average of 27 acquisitions valued at more than $1 billion. SoftBank Corp. (9984)’s pending deal for Sprint Nextel Corp. (S) would be the largest this year. The Japanese company’s latest offer for Sprint is $21.6 billion for a 78 percent stake.
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