Bloomberg News

Liberty Global Gets Antitrust Approval to Buy Kabel BW

December 16, 2011

(Updates with analyst’s comment in fourth paragraph.)

Dec. 15 (Bloomberg) -- Liberty Global Inc. won German antitrust approval to acquire cable operator Kabel Baden- Wuerttemberg GmbH, a decade after regulators blocked founder John Malone’s attempt to buy Deutsche Telekom AG’s cable assets.

The deal was cleared because Englewood, Colorado-based Liberty Global made “far-reaching” concessions, including removing basic encryption of digital free television programs as well as enabling competitors to bid on contracts with housing associations, which make up a large part of sales, the Bonn- based Federal Cartel Office said in a statement.

The 3.16 billion-euro ($4.1 billion) acquisition will expand Liberty Global’s subscriber base in Germany to almost 7 million. The market is set to outpace growth in elsewhere in Europe because of lower broadband and digital-TV penetration, according to research company IHS Screen Digest. The decision marks the first time German authorities have approved a combination of any of the country’s larger cable operators.

“This is a stepping stone to full consolidation of the German market,” Andrew Hogley, an analyst for Espirito Santo Investment Bank in London, said in a telephone interview. The U.S. company is “likely” to want to take over Kabel Deutschland Holding AG next, possibly in late 2012 or in 2013, said Hogley, who has a 53-euro share-price estimate for Kabel Deutschland.

Stock Rises

Kabel Deutschland jumped as much as 5.3 percent to 42 euros and was up 2.5 percent at 2:50 p.m. in Frankfurt. On Dec. 13, when the likelihood of approval was first reported, the stock rose 4.4 percent.

The company, which has its headquarters in the Munich suburb of Unterfoehring, could be worth as much as 55 euros a share to Liberty Global, based on the additional price paid for Heidelberg-based Kabel BW, Hogley said.

Liberty Global owns Cologne-based Unitymedia, Germany’s second-largest cable company, following a 3.5 billion-euro transaction in November 2009. Kabel Deutschland was blocked from buying three operators in 2004 because of concern it would quash competition. Malone, who founded Liberty Global’s former parent Liberty Media Corp., was turned down for the Deutsche Telekom deal in February 2002.

Kabel Deutschland may now take a second look at Tele Columbus GmbH and its 2.2 million customers, which UBS said last week could be worth as much as 600 million euros, or at Leipzig- based Primacom, which has about 1 million connected households, Hogley said. Both operate within Kabel Deutschland’s main region.

Deutsche Telekom’s Response

In Germany, cable companies cover distinct regions and don’t compete with each other. Their main rival is Deutsche Telekom AG, which offers broadband, telephone and television services nationwide. Customer demand for Deutsche Telekom’s broadband services has been slowing as cable operators offered faster and cheaper Internet links.

Liberty Global’s concessions “are not sufficient,” Bonn- based Deutsche Telekom said in a statement. “Despite the more difficult situation, we will continue to compete with the cable operators in television services.” Deutsche Telekom shares fell as much as 0.7 percent to 9.01 euros.

The remedies will allow Deutsche Telekom to bid for housing-association contracts in Liberty Global’s region, Espirito Santo’s Hogley said. Liberty Global may let the German telephone operator win a few of those agreements to make antitrust authorities more inclined to allow further consolidation, he said.

--Editors: Tom Lavell, David Risser

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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