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Quad-play equations

4 June 2013 By Quentin Webb

Vodafone’s German double-bill could make sense. The British mobile group is once again eyeing Kabel Deutschland, the Wall Street Journal says, for a takeover that could top 10 billion euros ($13.1 billion) including debt. Some analysts thought Germany’s biggest cable television outfit might be surplus to requirements following a Vodafone alliance with Deutsche Telekom. But Kabel Deutschland would still bolster the buyer’s position in a vital market. It is a shame it is so expensive.

Kabel Deutschland has caught Vodafone’s eye before: first ahead of its 2010 flotation, and again earlier this year. But each time the suitor’s interest seemed to cool. After the last flurry of takeover speculation, Vodafone went on to strike the network-access deal with Deutsche Telekom. That linkup enables Vodafone to sell fast fixed-line broadband and “internet protocol” television services using the latter’s network.

The interest in German cable suggests Vodafone is nervous about the rise of “quad-play” offers, which bundle television, broadband, fixed and mobile phone lines in one package. These have taken off in France and Spain, and could yet take hold in Germany.

The renewed interest in Kabel Deutschland also shows just how important Germany is to Vodafone. Leave aside Verizon Wireless, the U.S. joint venture which Verizon Communications wants to buy out, and it is Vodafone’s biggest market. It makes up more than a fifth of group EBITDA.

Buying Kabel Deutschland would give Vodafone a stronger offering in roughly half of Germany. Where the target’s network extends, Vodafone could offer genuine “quad-play”, including fixed-line telephone service, plus ultra-fast cable broadband. The combined group could also cope better with the explosive rise of mobile data, some of which it could re-route over Kabel Deutschland’s network. Hunger for such “backhaul” capacity helps explain the group’s purchase of Britain’s Cable & Wireless Worldwide last year.

There would be savings too. Espirito Santo, earlier this year, estimated that synergies could come with a net present value of 1.4 billion euros. But overall, the financial case is wobblier than the strategic one. Kabel Deutschland shares remain nearly one-fifth higher than they were before the last bout of takeover talk, and the group already trades at nearly 10 times EBITDA, a huge premium to Vodafone’s own rating. Investors in the would-be buyer could find that hard to swallow.


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