January 26, 2010 11:02 pm

Banks line up for Kabel’s €5bn buy-out

Private equity groups including CVC Capital Partners and Carlyle are lining up banks to finance a €5bn bid for Kabel Deutschland, Germany’s leading cable operator, in what would be the biggest leveraged buy-out for two years.

Bankers are prepared to provide between €3.5bn and €4bn of debt to finance a takeover bid for Kabel Deutschland, owned by Providence Equity Partners, the US private equity group specialising in media and telecoms.

Advent International and BC Partners are also working on possible bids for Kabel Deutschland, which could generate big profits for Providence and Tony Ball, the former BSkyB chief executive, who chairs the German group. A deal would be strong evidence that a revival in credit markets after the financial crisis is encouraging private equity groups to become more ambitious after a two-year slump in buy-outs.

European cable television companies are leading merger and acquisitions activity in the media industry and the rapidly expanding German cable market is seen as attractive, said a banker to several groups.

Providence has been preparing Kabel Deutschland for a €1bn initial public offering and appointed Morgan Stanley, UBS, Deutsche Bank and JPMorgan as advisers.

Resurgent debt markets mean that private equity groups may pre-empt an IPO with a bid. They may still need to join forces because the deal is too large for most buy-out groups.

The German cable operator, providing telephone, television and broadband services to more than 9m homes, is expected to increase earnings before interest, tax, depreciation and amortisation from €570m to €650m in the year to March 2010.

Recent takeovers of rival cable groups, such as John Malone’s €3.5bn deal to acquire Germany’s Unitymedia in November, suggest Kabel Deutschland would be worth about eight times its annual earnings, or €5.2bn.

Bankers say recent bond issues by European cable groups – such as Virgin Media and UPC – point to strong demand from institutional investors.

Kabel Deutschland issued a bond in 2003, so investors in high-yielding bonds are already familiar with the company and could be expected to support a new buy-out. If a deal is completed, banks are counting on bond markets to refinance part of the debt.

Additional reporting by Gerrit Wiesmann in Berlin

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