Kabel Deutschland Holding AG, the German company that’s the target of a potential takeover bid by Vodafone Group Plc, hired Morgan Stanley (MS:US) and Perella Weinberg Partners LP to advise on its strategy, people familiar with the matter said.
The banks are working with Kabel Deutschland to prepare for an approach from Vodafone, the people said, asking not to be identified because the discussions are private. While Chief Executive Officer Adrian Von Hammerstein may want to keep Kabel Deutschland independent, the company will review the financial and strategic rationale behind an offer, they said.
Vodafone’s management, in favor of pursuing talks, is waiting for Kabel Deutschland’s earnings release tomorrow before initiating negotiations, a person familiar with the matter said last week. Kabel Deutschland, based near Munich, is responding to the possible bid just as the company’s own takeover of smaller competitor Tele Columbus Group collapsed after regulators said they plan to block the deal.
The regulators’ stance on Tele Columbus “leaves Vodafone in a more difficult position than ever -- they could do nothing or buy an expensive partial solution,” Robin Bienenstock, an analyst at Sanford C. Bernstein, wrote in a note today. “If Vodafone buys Kabel Deutschland now they will need fibre wholesale” and lines beyond the German company’s footprint, “keeping wireline prices high.”
Kabel Deutschland shares fell as much as 2.9 percent and were down 1.6 percent at 70.11 euros as of 1:35 p.m. in Frankfurt. Vodafone declined 2.6 percent to 162.55 pence in London.
Goldman Sachs Group Inc. and UBS AG are advising Vodafone.
Representatives at Kabel Deutschland, Vodafone, Morgan Stanley, Perella, Goldman Sachs and UBS declined to comment.
Late yesterday, Kabel Deutschland reported that the German Federal Cartel Office said the company’s offer to sell some Tele Columbus’s assets was “insufficient to overcome its concerns.” The antitrust watchdog wants 60 percent of Tele Columbus’s networks in eastern Germany to be divested, about twice what was offered by Kabel Deutschland, and will probably block the deal now, Kabel Deutschland said.
As of yesterday’s market close, Kabel Deutschland had a market value of 6.3 billion euros ($8.4 billion) and an enterprise value, which includes debt, of about 7.8 billion euros.
Vodafone, the world’s second-largest wireless carrier, is building up fixed-line assets to offload surging traffic from its mobile-phone networks. Kabel Deutschland, which provides TV, Internet and phone services to more than 8 million German households, would help Vodafone protect its market share from cable rivals that are increasingly offering mobile packages.
Vodafone is looking for opportunities to expand as competition in its home market heats up. EE, the British joint venture between Deutsche Telekom AG and France Telecom SA, has rolled out faster, fourth-generation technology for customers ahead of Vodafone, helping the company win 752,000 contract customers last year.
Vodafone said this month that service revenue in the U.K. fell 5.2 percent last quarter from a year earlier “driven by continued intense competition and macroeconomic weakness.” That decline contributed to a total drop in revenue from customers’ mobile plans, the second quarterly decline in a row. EE’s service revenue, including a negative effect from regulatory cuts to roaming and termination rates, fell 2.6 percent.
Deals involving telecommunications and media companies fetched more than $57 billion so far this year, according to data compiled by Bloomberg. Billionaire John Malone’s Liberty Global Inc (LBTYA:US). this month entered Newbury, England-based Vodafone’s home market with a $16 billion agreement to acquire Virgin Media Inc (VMED:US). Liberty Global also owns two major cable operators in Germany.
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