Vodafone reaches preliminary deal to buy Kabel Deutschland for $10.1 billion

Vodafone reached a preliminary deal to acquire Kabel Deutschland Holding after increasing its bid for Germany’s largest cable company to about $10.1 billion.

Bloomberg reported that Kabel Deutschland’s board is set to recommend the cash offer after Vodafone raised its bid to 87 euros a share from the original 80 euros.

A formal announcement is expected on Monday.

The telecom industry is not expecting a new bid from Colorado billionaire John Malone’s Liberty Global which last week made its own preliminary offer of 85 euros a share against Vodafone’s earlier bid of 80 euros.

Vodafone strategies

The acquisition of Kabel Deutschland will enable Vodafone to access the German company’s 8.5 million connected households and potential customers for triple play packages of phone, Internet and TV subscriptions.

In Germany, the deal creates a strong number two triple play operator, increasing competitive pressure on Deutsche Telekom (DTE) and Sky Deutschland.

Vodafone, the world’s second-largest wireless carrier, reached a deal in May with Deutsche Telekom AG to use its high-speed Web network in Germany. The new deal for Kabel Deutschland may mean Vodafone has to find a way to integrate two fixed-line networks and consumer offers.

The agreement would value Kabel Deutschland’s equity at about 7.7 billion euros and produce an enterprise value, which includes debt, of about 10.7 billion euros.

Phone companies across Europe are bulking up their networks and adding services as they strive to increase customer bills and loyalty. Bundles of TV, Internet and phone service are becoming increasingly popular, stoking deals and partnerships between carriers.

Why Kabel Deutschland

Vodafone CEO Vittorio Colao is building his company’s fixed-line assets to offer the packages to more consumers and business customers. Vodafone eliminated jobs and wrote down 7.7 billion pounds on its operations in Spain and Italy last fiscal year.

Germany makes difference

The Bloomberg report says that Liberty Global has also been snapping up cable assets around the region, completing a $16 billion takeover of Virgin Media Inc. in the U.K. earlier this month. It also has a stake in Ziggo NV in the Netherlands as well as businesses in Belgium, Austria, Ireland and Switzerland.

Liberty entered Germany, Europe’s biggest telecommunications market, with the acquisition of Unitymedia in 2010. It was forced to take steps such as removing encryptions and opening contracts with housing associations to rivals when it added operator KabelBW the next year to form the country’s second-largest cable operator.

Why Liberty is not the right choice for Kabel Deutschland

Kabel Deutschland’s management, led by Chief Executive Officer Adrian von Hammerstein, may have concerns that a Liberty deal would run into obstacles from regulators. Kabel Deutschland was blocked by the German antitrust regulator from buying Berlin-based cable operator Tele Columbus Group in February.

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