Vodafone reaches a deal to buy Kabel Deutschland

Vodafone has agreed to buy Germany’s largest cable operator Kabel Deutschland for €7.7bn, adding TV and fixed-line services to help defend against rising competition.

In Vodafone’s largest deal in six years and its second major buy of a European fixed-line network in 12 months, the group is offering a near 40% premium to Kabel’s share price before its interest first emerged in snapping up the target’s 8.5m connected homes.

The price was pushed up in the last week by an approach from John Malone’s Liberty Global, which could still return with a higher bid, but two sources said that they did not expect that to happen.

“Although you should never underestimate someone as aggressive as Malone, it is very difficult to see how Liberty could make a bid in cash that would be higher than what KDG [Kabel Deutschland] already considers a good price,” one source said.

So-called “quad-play” services offering TV, broadband, mobile, and fixed-line telephone have caught on rapidly in markets such as France and Spain, but the largely fragmented German cable market is still some way behind, meaning a deal could enable Vodafone to steal a march on rivals such as Liberty’s Unity Media and Deutsche Telekom.

“The value of infrastructure is now in focus with telecom companies and cable providers increasingly in competition with each other,” said Andreas Mark, a portfolio manager with Union Investment, a shareholder in Kabel Deutschland.

“Clients want a stronger network and better performance.”