February 19, 2013 4:05 pm

Kabel Deutschland: deal or no deal

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Pressure is on Vodafone to come up with good deal for cable operator

Those pesky antitrust officials. Just as the market gets excited about a possible tie-up between mobile operator Vodafone and Kabel Deutschland, Germany’s largest cable company by customers, they tell the latter that it cannot go ahead with a domestic cable merger unless it makes bigger concessions. According to KD, the Bundeskartellamt wants to see 60 per cent of Tele Columbus’s networks in eastern Germany divested – twice its offered solution. So the deal is likely to fail. And that, runs the thinking, has implications for a potentially synergistic merger between Vodafone, with a significant German broadband business, and KD, since this would also face antitrust scrutiny. Their shares fell 2 and 7 per cent respectively.

It all looks a trifle knee-jerk. KD’s Tele Columbus deal had appeared troublesome for months – largely because of the Bundeskartellamt’s clearly-voiced concerns about maintaining competition for housing association TV contracts and its record. (Officials only allowed a deal between Liberty Global’s German Unitymedia and a smaller regional cable network after extensive conditions). Direct read-across to any Vodafone/KD deal may be limited: while the companies compete on broadband/telephony, Vodafone is not in the pay-TV business, and there would be no consolidation of physical networks.

More pertinent is whether failure of the Tele deal reduces KD’s appeal as a merger partner. Some estimates suggested that cost and revenue synergies made this worth around €5/share to KD. But the cable group’s marriage prospects are being driven by a more fundamental consideration – namely, the potential for offering consumers four-way bundles of TV, broadband, telephony and mobile services. Pressure is on Vodafone to come up with viable “convergence” solutions. On that score, nothing has changed.

Email the Lex team in confidence at lex@ft.com

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