Liberty Global-Kabel BW Merger Antitrust Approval Toppled

Liberty Global Plc.’s antitrust clearance to buy cable operator Kabel Baden-Wuerttemberg GmbH was overturned by a court that said the competition authority didn’t demand tough enough concessions.

The Dusseldorf Higher Regional Court sided with Deutsche Telekom AG, which challenged the deal’s approval by Germany’s Federal Cartel Office. The regulator must review the merger again and take a new decision unless today’s ruling is overturned on appeal, the court said in an e-mailed statement.

“The concessions provided for by the Federal Cartel Office aren’t fit to make up for the increase of the market-dominating position because of the merger,” the court said.

Liberty Global bought Kabel Baden-Wuerttemberg, Germany’s third-largest cable operator, from EQT Partners in March 2011 for about 3.16 billion euros ($4.19 billion), to benefit from demand for broadband Internet access via cable. The company two years earlier bought Unitymedia, Germany’s second-largest cable operator, for about 2 billion euros and assumed 1.5 billion euros in debt.

While the German market is “for now” characterized by providers that act only in specific regions, without the merger Kabel BW could have extended its activities to Unitymedia’s territory, increasing competition, the court said. With the merger, Unitymedia’s dominant position in the market was increased, the judges said.

‘Highly Unlikely’

If today’s ruling stands and the regulator reviews the deal again, the Cartel Office must examine whether it’s possible to clear it “under changed conditions,” the court said. If that’s not possible, the merger has to be unwound, according to the tribunal.

“It’s definitely a negative for Liberty Global and it adds uncertainty, but it’s highly unlikely you’d see the entire deal being unhinged,” said Stuart Gordon, a media analyst at Berenberg Bank in London. At most, stricter remedies could be put in place, including Liberty Global being forced to give access to its network, he said.

“It’s not that Deutsche Telekom was predicated on stopping the deal, but it felt the remedies being called for were too lenient,” he said.

Liberty Global will use all legal means available to appeal the ruling at Germany’s top civil court, the company said in an e-mailed statement.

‘Far Reaching’

The antitrust regulator said in 2011 it cleared the deal because Englewood, Colorado-based Liberty Global made “far-reaching” concessions. They included removing basic encryption of digital free television programs as well as enabling competitors to bid on contracts with housing associations, which make up a large part of sales, the Federal Cartel Office said at the time.

“We viewed the merger very critically and approved it only under very far-reaching and market-opening concessions,” Olaf Wrede, a spokesman for the Bonn-based antitrust regulator, said in an e-mail. “The court now goes a step further. We will wait for the written judgment and will then decide on how to proceed.”

Liberty Global Chairman John Malone has faced obstacles in Europe before. His first attempts at buying European cable assets were thwarted. German regulators in 2002 halted his attempt to buy Deutsche Telekom’s television infrastructure, while attempts to acquire U.K. operators NTL Inc. and Telewest Communications Plc were resisted by bondholders.

Internet Traffic

He then turned to other markets, acquiring assets beginning with UPC in the Netherlands. In the years that followed, cable evolved from a medium for TV consumption to one that could handle phone and Internet traffic, the latter at speeds that often trumped the networks that phone companies could muster. Liberty Global this year bought U.K. pay-TV provider Virgin Media for $16 billion.

In an interview last month, Malone admitted defeat to Vodafone Plc, which outbid Liberty Global for Germany’s biggest cable company, Kabel Deutschland Holdings AG.

Liberty Global sought to trump Vodafone’s bid for Germany’s biggest cable company. Vodafone topped Liberty Global’s offer, which was also undermined on concern the competition regulator would be more likely to authorize Vodafone, which had no local assets. Kabel Deutschland’s board advised shareholders to accept Vodafone’s offer. They have until Sept. 11 to decide.

Kabel Deutschland today reported quarterly earnings that missed analysts’ estimates as premium-television growth fell short of expectations.

Adjusted earnings before interest, taxes, depreciation and amortization of 217 million euros was less than the 226.6 million-euro average estimate of seven analysts. The acquisition of Kabel Deutschland is a key element of Newbury, England-based Vodafone’s ambition to expand beyond wireless service.

Kabel Deutschland fell less than 1 percent to 84.70 euros in Frankfurt.

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