Kabel Investor Elliott Boosts Stake Before Vodafone Deadline

Paul Singer, the billionaire hedge-fund manager, boosted his stake in Kabel Deutschland Holding AG to become one of its biggest shareholders days before a deadline for investors to decide whether they’d accept Vodafone Group Plc’s takeover bid.

Singer and entities owned by his Elliott Management Corp. held 10.9 percent of the cable company as of Sept. 6, according to a German regulatory filing. Singer’s firm had just more than 5 percent of Kabel Deutschland as of Aug. 23, data compiled by Bloomberg showed.

Vodafone, which is bidding 7.7 billion euros ($10.2 billion) -- or 87 euros a share -- for Kabel Deutschland, must have 75 percent of the cable company’s investors accept the offer by Sept. 11, or else the deal will fall through.

The U.K. wireless carrier, which owned or has secured the backing of holders of a total of 11.9 percent of Kabel Deutschland as of Sept. 6, said today all terms and conditions of its offer remain unchanged and won’t be amended. While bidders of German companies are allowed to request a lower acceptance threshold before the end of an offer period, Vodafone’s statement eliminates that possibility, Citigroup Inc. analyst Simon Weeden wrote in a note.

“We see this as a move in a game theory ‘chicken’ scenario which inevitably carries some increase in the risk of deal failure,” Weeden wrote. “Deal failure would in our view leave Vodafone’s convergence strategy in question.”

Domination Agreement

The deadline for investors to tender their shares expires at midnight in Frankfurt on Sept. 11. If the tender offer is successful, the European Commission is due to complete its review of Vodafone’s bid by Sept. 20, Vodafone said today. Germany’s Federal Cartel Office, the local regulator, has said it won’t need to issue its own approval of the deal.

The 75 percent requirement is a common threshold used by companies to help secure sufficient shareholder votes to gain control of publicly traded German businesses under a so-called domination and profit transfer agreement. Recent applications of the rules include Volkswagen AG’s takeover of truckmaker MAN SE and Deutsche Bank AG’s acquisition of Deutsche Postbank AG.

Investor Worries

An Elliott Management spokesman in New York, who asked not to be named citing company policy, declined to comment beyond the regulatory filing.

Kabel Deutschland slipped 0.6 percent to close at 85.22 euros in Frankfurt. Vodafone fell 0.2 percent to 210.40 pence on the London exchange.

At least one top investor has expressed concerns that the 75 percent threshold is too high and that Vodafone risks letting the deal lapse, according to a person familiar with the matter, who asked not to be named discussing the deal.

The takeover would give Vodafone access to potential customers for offers combining phone, Internet and TV subscriptions. The move would also intensify competition with Deutsche Telekom AG on whose network Vodafone has so far relied for wireline services.

Vodafone last week agreed to sell its 45 percent stake in U.S. mobile-phone company Verizon Wireless for $130 billion. While most of the proceeds will be returned to shareholders, the Newbury, England-based company has said it will retain about $30 billion to repay debt and make investments.

AT&T Inc., the biggest U.S. phone company, may be interested in buying what’s left of Vodafone after the sale to take advantage of growth in mobile networks in Europe, people familiar with the matter said this month. Vodafone spokesman Simon Gordon declined to comment on a potential deal with Dallas-based AT&T or the implications of Elliott’s increased stake.

“An early end to its quest for Kabel Deutschland would leave Vodafone post its U.S. exit unlevered with minimal net debt,” Citigroup’s Weeden said. A failure of the Kabel Deutschland deal “would keep it as a purer mobile play and might encourage further thoughts among investors of it being a takeover target itself.”

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