Following Vodafone’s recent confirmation of its interest in Kabel Deutschland (KDG), questions have been raised whether Liberty Global (LGI) might come in with a bid of its own for the German cableco.
LGI owner John Malone had confirmed previously…
Following Vodafone’s recent confirmation of its interest in Kabel Deutschland (KDG), questions have been raised whether Liberty Global (LGI) might come in with a bid of its own for the German cableco.
LGI owner John Malone had confirmed previously that he considers KDG an attractive asset, and in April a German weekly reported that LGI was working on an offer for the cableco.
A telecoms banker and a university expert familiar with the German cable sector both told TelecomFinance they expect LGI to make an offer for KDG in the wake of Vodafone’s interest.
According to the banker, who has worked on cable deals in Germany in the past, LGI has already talked to lawyers about a potential bid. In his view, the cable conglomerate, which recently completed its acquisition of the UK’s Virgin Media, will “definitely do something soon”.
However, like most experts following the situation, the banker expected that an LGI/ KDG combination would be likely to encounter antitrust obstacles. Earlier this year, Germany’s Federal Cartel Office’s (FCO) blocked KDG’s planned acquisition of smaller rival Tele Columbus, even after remedies were offered, saying it was concerned the deal would reduce competition in regions in which the two operators compete directly.
Liberty owns Germany’s largest cableco by turnover, UnityMedia KabelBW. This company itself was created by the merger of two of Germany’s largest cable operators at the time, and only received antitrust approval when LGI agreed to far-reaching remedies in 2011 after a long and complicated antitrust review.
In the banker’s view, LGI would be unlikely to be able to offer sufficient remedies to convince the FCO to approve a takeover of KDG.
Warwick Business School assistant professor and telecoms expert Ronald Klingebiel also said a LGI/KDG combination would struggle to secure regulatory approval. However, he said Liberty, which has operations throughout Europe, may still bid for KDG in an effort to drive up the price and slow down the sales process.
Both sources believe a bid by Vodafone for KDG could ultimately be successful, with the banking source saying the deal could very well close this year.
“For Vodafone, it’s very timely. I wouldn’t expect problems from the German cartel office,” the banker said.
However, he noted that Vodafone’s declined share price since the announcement earlier this week suggest “tough” internal discussions will need to take place before it makes its next move.
Klingebiel said that because a Vodafone and KDG tie-up would not reduce the number of companies owning cable TV networks in Germany, a merger between the two is more likely to get regulatory approval.
Conversely, Bernstein Research analysts and a Germany-based former cableco executive TelecomFinance spoke with predict LGI will not bid for KDG.
In a note to investors, the Bernstein analysts explained that they don’t expect a counter bid from the US cableco as “their balance sheet and regulators make that too much of a stretch today”.
The former executive, who is still invested in the sector, said that while he believes Vodafone is serious about KDG, such a merger could also attract close scrutiny from the antitrust regulator because it would effectively see two major telecoms players join forces.
LGI could argue to the FCO that Unitymedia and KDG compete directly in only a small percentage of local markets, he suggested. Vodafone, on the other hand, is present throughout the country and therefore has a much larger regional overlap with KDG.
In his view, KDG would love LGI to come in with a higher counter offer, however he doubted the cable giant would do so given KDG’s currently inflated share price and its level of debt.
LGI declined to comment on the matter, citing company policy.
However, John Malone said in an October 2012 interview with the now-defunct Financial Times Deutschland that a merger of Unitymedia KabelBW and KDG would “make all the sense in the world,” if regulators would allow such a deal to proceed.
