 "Vodafone approaches Kabel Deutschland to discuss bid")
UK mobile firm Vodafone has approached Kabel Deutschland about a bid for Germany's biggest cable operator that could top euro7 billion ($9.3 billion) and help fend off competition in its most important European market.
The world's second-biggest mobile operator has long been linked with a move for the cable group as it seeks to meet the demands of customers who increasingly want to take television, broadband, mobile and fixed-line services — so-called “quad play” — from one provider.
Vodafone picked Goldman Sachs to examine a possible euro 10-billion bid, including debt, earlier this year and its renewed interest could help the group better compete against mobile operators, which are slashing prices, and against the pan-European cable group Liberty Global, which has been on an acquisition spree.
Vodafone sent a letter by email to Kabel Deutschland announcing its interest and indicating a price, a person familiar with the matter said. However that early offer was deemed to be too low by Kabel Deutschland, a second source said.
Both companies confirmed the approach, but gave no further details. Any deal would be Vodafone's largest since 2007.
Vodafone Chief Executive Vittorio Colao said earlier this year he could afford to do deals in Europe without having to sell his prized asset, a stake in US group Verizon Wireless, which its joint partner Verizon Communication has said it would like to buy in one of the world's biggest deals.
Expensive
Germany is Vodafone's largest market excluding its venture in the US and it has recently negotiated a wholesale deal with Deutsche Telekom (DT) that would allow it to rent lines from the fixed-line group to offer TV and broadband services.
“What might perturb investors is that this approach comes so soon after Vodafone signed a wholesale DSL deal with DT that was seen and touted as a solution to their convergent needs,” Deutsche Bank analysts said. “To then approach KDG suggests that this is merely an infill and that infrastructure ownership is ultimately necessary to provide a fully competitive convergent offer. Unsurprisingly this is likely to read across into other markets.”
One person familiar with Vodafone's thinking said the Deutsche Telekom deal would strengthen its hand if and when it comes to negotiate with Kabel Deutschland. “Vodafone has the option not to buy fixed assets in Germany now that it has the wholesale deal with Deutsche Telekom that allows it to sell converged offers,” the person said.
A banker advising telecom companies who is not involved in this deal said Kabel Deutschland was expensive and was sceptical the two groups would be able to agree a price.
According to ThomsonReuters Starmine, Kabel Deutschland shares trade at an enterprise value (equity plus debt) to core earnings ratio of 10.1 times, compared with peers on 7.2. These include Liberty Global on 7.8.
Stealing a march
Quad-play services have caught on rapidly in markets like France and Spain where they have been pioneered by major local companies France Telecom and Telefonica. Germany is some way behind and buying Kabel Deutschland could allow Vodafone to steal a march on Deutsche Telekom.
Vodafone owns some fixed lines in Europe, including in Germany, but only offers quad-play services in Portugal.
Analysts at Espirito Santo said there would be significant synergies for Vodafone from migrating some of its fixed-line customer base on to Kabel Deutschland's cable infrastructure, possibly worth as much as euro
16 per Kabel Deutschland share.
The world's second-biggest mobile operator has long been linked with a move for the cable group as it seeks to meet the demands of customers who increasingly want to take television, broadband, mobile and fixed-line services — so-called “quad play” — from one provider.
Vodafone picked Goldman Sachs to examine a possible euro 10-billion bid, including debt, earlier this year and its renewed interest could help the group better compete against mobile operators, which are slashing prices, and against the pan-European cable group Liberty Global, which has been on an acquisition spree.
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Shares in Vodafone, which went ex-dividend on Wednesday, fell over four per cent, as some analysts speculated the group might seek similar deals in other countries. Kabel Deutschland shares jumped over nine per cent to a new high of euro 82.4, valuing the business at about euro 7.2 billion.
Vodafone sent a letter by email to Kabel Deutschland announcing its interest and indicating a price, a person familiar with the matter said. However that early offer was deemed to be too low by Kabel Deutschland, a second source said.
Both companies confirmed the approach, but gave no further details. Any deal would be Vodafone's largest since 2007.
Vodafone Chief Executive Vittorio Colao said earlier this year he could afford to do deals in Europe without having to sell his prized asset, a stake in US group Verizon Wireless, which its joint partner Verizon Communication has said it would like to buy in one of the world's biggest deals.
Expensive
Germany is Vodafone's largest market excluding its venture in the US and it has recently negotiated a wholesale deal with Deutsche Telekom (DT) that would allow it to rent lines from the fixed-line group to offer TV and broadband services.
“What might perturb investors is that this approach comes so soon after Vodafone signed a wholesale DSL deal with DT that was seen and touted as a solution to their convergent needs,” Deutsche Bank analysts said. “To then approach KDG suggests that this is merely an infill and that infrastructure ownership is ultimately necessary to provide a fully competitive convergent offer. Unsurprisingly this is likely to read across into other markets.”
One person familiar with Vodafone's thinking said the Deutsche Telekom deal would strengthen its hand if and when it comes to negotiate with Kabel Deutschland. “Vodafone has the option not to buy fixed assets in Germany now that it has the wholesale deal with Deutsche Telekom that allows it to sell converged offers,” the person said.
A banker advising telecom companies who is not involved in this deal said Kabel Deutschland was expensive and was sceptical the two groups would be able to agree a price.
According to ThomsonReuters Starmine, Kabel Deutschland shares trade at an enterprise value (equity plus debt) to core earnings ratio of 10.1 times, compared with peers on 7.2. These include Liberty Global on 7.8.
Stealing a march
Quad-play services have caught on rapidly in markets like France and Spain where they have been pioneered by major local companies France Telecom and Telefonica. Germany is some way behind and buying Kabel Deutschland could allow Vodafone to steal a march on Deutsche Telekom.
Vodafone owns some fixed lines in Europe, including in Germany, but only offers quad-play services in Portugal.
Analysts at Espirito Santo said there would be significant synergies for Vodafone from migrating some of its fixed-line customer base on to Kabel Deutschland's cable infrastructure, possibly worth as much as euro
16 per Kabel Deutschland share.