Vodafone has agreed a £6.6 billion ($10.14 billion) takeover of Germany’s Kabel Deutschland aimed at bolstering its presence in the country’s broadband and TV markets.
The deal will create a company with combined revenues of €11.5 billion ($15.1 billion), as well as 32.4 million mobile, five million broadband and 7.6 million TV customers.
The management and supervisory boards of Kabel Deutschland (Unterfoehring, Germany) – Germany’s largest cable company – have approved the offer, said Vodafone (Newbury, UK) in a statement, but it still requires the necessary sign-offs from competition authorities.
Besides paying £6.6 billion in cash, Vodafone will assume €3.3 billion ($4.3 billion) in net debt, putting the enterprise value of the deal at $14.4 billion.
The price values Kabel Deutschland at 13.8 times its projected operating free cash flow for 2014, which appears to be a substantial premium to similar deals, but Vodafone is expecting to realize significant efficiency gains from the tie-up, estimating the net present value of revenue and cost synergies at €4.5 billion.
A merger would see Kabel Deutschland’s management assume responsibility for the combined consumer fixed-line business in Germany, but Vodafone expects to accelerate growth in broadband and TV markets by contributing its brand and distribution expertise to the business.
“German consumer and business demand for fast broadband and data services continues to grow substantially as customers increasingly access TV, fixed and mobile broadband services from multiple devices in the home and workplace and on the move,” said Vittorio Colao, Vodafone’s chief executive.
“The combination of Vodafone Germany and Kabel Deutschland will greatly enhance our offerings in response to those needs and is consistent with Vodafone’s broader strategy of providing unified communications services,” he said.
Vodafone was originally thought to have offered about €7.2 billion for Kabel Deutschland but been forced to increase its offer due to competition for the asset from Liberty Global (Meridian, CO, USA), which always seemed likely to face opposition from regulatory authorities because it already owns Unitymedia, Germany’s second-largest cable operator.
Although one of Germany’s leading mobile operators, Vodafone has struggled to make an impact in the country’s fixed-line sector, facing tough competition from telecoms incumbent Deutsche Telekom (Bonn, Germany) besides the cable companies.
At the end of March, the operator served just 3.14 million broadband customers in Germany and the number had fallen from 3.39 million a year earlier.
Deutsche Telekom, by comparison, had 12.4 million broadband customers at the end of March.
Despite losing market share to its cable rivals, it reported the same number of customers as in March 2012 and recently secured regulatory approval of plans to invest in new high-speed networks.
Having signed up Vodafone as a high-profile customer of those networks, Deutsche Telekom may now be concerned about the impact on its wholesale business of the UK operator’s move for Kabel Deutschland.