UK-based mobile operator Vodafone has approached German cableco Kabel Deutschland (KDG) about a potential offer for the company.
Both Vodafone and KDG issued short statements today confirming the “preliminary approach”.
KDG’s share price has…
UK-based mobile operator Vodafone has approached German cableco Kabel Deutschland (KDG) about a potential offer for the company.
Both Vodafone and KDG issued short statements today confirming the “preliminary approach”.
KDG’s share price has since jumped markedly, rising from €77.31 when trading began this morning to €80.89 at the time of writing.
Reports on Vodafone’s interest in Germany’s largest cableco emerged early this year, however the UK operator was said to have postponed plans to make a bid in February as leaks of the news disrupted internal talks.
Early this month, articles in the German and US editions of the Wall Street Journal cited unidentified sources as saying Vodafone was reconsidering a takeover of KDG which, based on its current trading price, has a market value of about US$7.16bn. One source claimed that the companies met recently to discuss such a deal.
Yesterday, Bloomberg cited unidentified sources with knowledge of the matter as saying that Vodafone contacted KDG to discuss an offer within the past week.
The news agency cited people familiar with the matter as saying the parties are not yet in talks as KDG has decided Vodafone’s indicative pricing is too low. However, if Vodafone comes back with a higher price, talks could begin immediately, the sources were quoted as saying.
A Reuters report today cited two people familiar with the situation as saying that Vodafone has indicated to KDG that it would pay €81 to €82 per share for the company. One source was quoted as saying that KDG rejected this offer as too low and that no further talks were scheduled.
Until today, both Vodafone and KDG had declined to provide any comment on the matter.
Analysts have estimated that Vodafone may need to pay 11.2xEBITDA for KDG shares.
In a note to investors, Nomura analysts noted that KDG’s shares were trading at 10.2x EBITDA at market close yesterday. A 15% premium on shares valuing them at €85 each would increase this to 11.2x EBITDA, they added.
Bernstein analysts estimate that KDG shares are worth €69 each to Vodafone, but the mobile operator may end up having to pay up to €90 per share, or 11.2x EBITDA.
A €90 per share offer for KDG would value the company at €7.97bn.
Vodafone Germany’s recently-signed network access agreement with Deutsche Telekom prompted speculation that the UK operator would not proceed with a bid for KDG. However, Vodafone has emphasised that it aims to offer “unified communications services” in European markets.
Commenting on today’s announcements, Nomura analysts said they believe Vodafone’s decision to approach KDG was driven by the potential for backhaul savings and the opportunity to migrate the cableco’s customers to its own network, thereby driving cost synergies.
“We believe one of the key moving parts of Vodafone’s thinking has been a reassessment of mobile data volumes and the consequent need for high-bandwidth backhaul to connect its base stations,” theysaid in a note to investors.
“Using the Cable & Wireless Worldwide synergies target as a guide, we sense backhaul savings could be in the range of £50m to £100m per annum.”
The Nomura analysts said Vodafone is likely to have to pay a high price for KDG, adding that this will attract criticism given the UK operator looked closely at the cableco ahead of its 2008 IPO, when its equity was much cheaper.
“Given Vodafone’s track record for value-destructive M&A (albeit under previous management), shareholders are likely to be concerned about future intentions. However, Vodafone has already reset dividend expectations lower, it has been open about its interest in German cable and it is also poised to crystallise value in its US asset.”
