Vodafone set to pay £9.1bn for German cable giant

MOBILE phone giant Vodafone was yesterday poised to buy Germany’s biggest cable operator in a deal worth £9.1bn.

Vodafone is poised to buy Germany's biggest cable operator in a deal worth £9.1 billion.
Vodafone is poised to buy Germany's biggest cable operator in a deal worth £9.1 billion.

The acquisition, which could still be derailed by rival interest from US media group Liberty Global, will boost Vodafone’s ability to offer consumers bundled packages of telecoms, broadband and television services.

The addition of Kabel Deutschland’s 8.5 million connected households would leave Vodafone with 32.4 million mobile, five million broadband and 7.6 million direct TV customers in Germany.

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Yesterday’s offer, which has been backed by Kabel Deutschland’s management and supervisory boards, has a total value of £9.1bn when including £2.5bn of debt. Vodafone’s proposal is worth 87 euro (£74) a share and is thought to better an earlier rival bid from Liberty, owner of Virgin Media, at 85 euro (£72) a share.

Operators are increasingly attracted to the ‘quad play’ business model, in which customers are able to subscribe to a package including TV, internet, landline and mobile services.

The British company has been expanding its presence in Germany recently, announcing a tie-up with Deutsche Telekom to offer pay-TV over high-speed broadband to its customers.

Germany has been one of Vodafone’s better-performing markets in Europe.

Chief executive Vittorio Colao 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 in the home and workplace, and on the move.”

The deal will provide Vodafone with cross-selling and cost-saving opportunities in what is already its single biggest market.

The company has also highlighted significant growth prospects in light of broadband and pay-TV penetration of 16 per cent and 12 per cent respectively.

The company added: “Leveraging Kabel Deutschland’s high speed broadband and TV capabilities will provide Vodafone with the ability to offer premium unified communications services to consumers and businesses in Germany.”

Vodafone shares were up by XX per cent yesterday amid relief that the proposed purchase price is in line with market expectations.

In 2000, Vodafone agreed a £112bn all-share deal with Germany’s Mannesmann in the largest corporate merger in history.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said the deal looked to have received the tentative thumbs-up from investors.

He added: “The price being offered comes as no surprise whilst Vodafone’s customer offering is potentially being significantly increased.”

Professor Colin Pattinson, who is head of the School of Computing, Creative Technologies & Engineering at Leeds Metropolitan University, said: “As communications technology continues to develop in scope and complexity, we have gone beyond the situation where it is a viable business strategy simply to provide network connections (fixed wire or mobile). Customers now expect services and applications to be included as part of the ‘product’ and suppliers see those added services as their opportunity to differentiate their offering, attract customers and hence make a profit from their activity.

“Increased complexity of applications almost inevitably means increased demand on the network, requiring more data to be transferred: the higher quality video expected by TV consumers requires more data per image, interactive services means more two-way traffic and location aware services call for more communication between the user’s device and the service provider.

The 4G (4th Generation) network provision currently being rolled out is aimed at addressing this extra demand, but as current networks become ever more loaded there is also a need for more immediate rises in capacity.

“As a cable TV operator, Kabel Deutschland offers some of this extra capacity, and the opportunity of combining its existing customer base with Vodafone’s mobile customers should allow development of the kind of integrated service users now expect – irrespective of the communications technology in use.”