Vodafone Raises Kabel Deutschland Bid - Analyst Blog
21 Juni 2013 - 8:00PM
Zacks
After a preliminary acquisition
offer last week, according to sources, Vodafone Group
Plc. (VOD) has raised its bid to €7.5 billion from €7.2
billion (approximately $9.6 billion) for Kabel Deutschland. This
brings the new offer to around 85 euro cents per share from the
previous bid of €0.80–€0.82.
We believe that Vodafone’s new offer is a strategic counter
reaction to the proposed plan of Liberty Global
Inc. (LBTYA) to acquire Kabel Deutschland. Recently,
Liberty Global made a higher offer to Kabel Deutschland, outbidding
Vodafone’s initial offer.
Kabel Deutschland, with a net worth of €8 billion, covers over 8
million German households. It offers wireline services like HD and
analog TV, Pay TV and broadband Internet with speeds of up to 100
Mbps and fixed-line voice services through cable as well as
wireless services through industry collaborations.
It is evident that the prospective acquisition would oust major
players in the German wireline industry. Vodafone would then be an
undisputed leader in wireline business with the biggest loaf of
cable TV and broadband business in Deutscheland.
West Europe is experiencing a growing demand for pay-TV services
together with triple-play bundled services that combine basic cable
TV, and Internet. Telephone carriers like Vodafone are increasingly
looking for markets, where they can increase share with bundled
video, broadband, and telephone that warrant higher margin and
lower churn rates.
But, beyond this, Vodafone foresees significant cost synergies
(approximately 300–500 million Euros) by not having to pay rentals
for copper lines to Deutsche Telekom. Vodafone currently requires
these copper lines to provide its 3.3 million customers in Germany
with DSL services.
Further, Vodafone’s efforts to bring its customers within one
network infrastructure (DSL to LTE) through the deal would result
in additional savings for the company by curtailing spending on
network build outs.
However, we believe that the implementation of network conversion
remains a long-term process and involves structural changes. Hence,
in the near future, we expect the likely Kabel Deutschland deal,
which comes with an existing set of network backhauls, to provide a
good platform for offloading data traffic and resolving spectrum
issues for Vodafone.
However, the biggest challenge for the company will be to win
antitrust approval. Historically, this issue has impeded the
successful completion of many deals such as the AT&T
Inc. (T) and T-mobile acquisition. Given the size of
Vodafone’s prospective deal and its impact on the competitive
position of players like Liberty Global, there lies a fair chance
of regulatory intervention.
Vodafone, which operates in the European market with the likes of
France Telecom (FTE) currently carriers a Zacks
Rank #3 (Hold).
FRANCE TELE-ADR (FTE): Free Stock Analysis Report
LIBERTY GLBL-A (LBTYA): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis Report
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