Vodafone takes leap into German multi-media sector

Vodafone has splashed out ¬7.7 billion (£6.5bn) to snap up Kabel Deutschland. Picture: AP

City analysts said the deal, together with Vodafone’s acquisition of Cable & Wireless in the past year, represented a major bet on television and fixed-line services.

The UK group said Kabel Deutschland, for which it is seen as paying top-dollar at €87 per share, would allow it to offer its mobile customers more competitive packages with television, fixed-line and broadband services.

Vittorio Colao, Vodafone’s chief executive, said: “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. The combination of Vodafone Germany and Kabel Deutschland will greatly enhance our offerings in response to those needs.”

The deal creates a business with €11.5bn of revenue in Germany, from 32.4 million mobile customers, five million broadband and 7.6 million TV customers. Kabel’s management team and HQ will be retained.

Colao said his group’s strategy “is to serve in the home and in the office, and with the ubiquity [of telecoms], everywhere else”.

Vodafone is reported to have looked at buying the company at a much lower €22 per share before the German group went public in March 2010.

Colao said that, on possible acquisitions, Vodafone “has looked at practically everything in every market in which we operate, including Kabel.”

He added that Germany was Vodafone’s biggest European market after the blockbuster £112bn takeover of Mannesmann in early 2000. “Quite frankly, it [Germany] is Europe’s most solid country,” Colao said.

One trader said the latest offer valued the German group at 12 times enterprise value against estimated 2013 core earnings, which is a 35 per cent premium to the sector.

However, this falls to 8.5 times when taking into consideration the cost and revenue synergies Vodafone expects to extract from the deal, its biggest since an Indian acquisition in 2007. “We believe this is a decent deal for Vodafone,” the trader said.

Some analysts had greater reservations. Keith Bowman at Hargreaves Lansdown commented: “The deal offers a combination of both cross-selling and cost-saving opportunities, with Vodafone making its move in what is already its single biggest market. Less positively, Vodafone’s European acquisition track record is not great, still marred somewhat by its previous over‑payment for Germany’s Mannesmann.”

Liberty Global is seen as the most likely alternative suitor by analysts.

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