Vodafone squeezing out Kabel Deutschland minorities

Vodafone’s decade-old bid to take sole control of Kabel Deutschland appears to be nearing resolution, with the telco group initiating a squeeze-out of minority shareholders.

Vodafone Germany and Kabel Deutschland are effectively already one company; ‘Kabel Deutschland und Vodafone sind jetzt eins,’ the mobile operator’s Website proudly states, alongside its range of fixed Internet packages. But Vodafone does not own 100% of the cable operator’s shares, and now it is seeking to rectify that.

On Wednesday it announced the official launch of a statutory merger and squeeze-out of minority Kabel Deutschland shareholders. It aims to acquire all remaining shares and merge Kabel Deutschland into Vodafone KDG, its German business, targeting a completion date of end-March 2024, the end of the upcoming fiscal year.

As of the end of September, Vodafone owned 93.8% of Kabel Deutschland’s share capital. And it looks like it will have to spend around half a billion euros to pick up the remainder, which is no small sum, particularly given rudderless Vodafone Group’s situation at present.

It was a pretty big deal when Vodafone moved to acquire Kabel Deutschland as long ago as 2013. Its €87-per-share offer gave the cableco an equity value of €7.7 billion, but in addition to the financial element, the deal was also a marker of things to come; it represented Vodafone’s first big move to add a credible fixed element to a national portfolio.

The voluntary public takeover offer left Vodafone with a 76.8% holding in Kabel Deutschland. It then needed the support of minority shareholders to wrap the cableco into its own business, which it secured by offering them an annual payment of €3.17 per share. It also left a put option on the table, then valued at €84.53 per share for any minority holder that decided to sell out.

A legal battle ensued, the minorities not being entirely happy with Vodafone’s offer. After years of being dragged through the courts, and with the case still ongoing, the telco launched a tender offer of €103 per share at the back end of 2020 in a bid to put the whole thing to bed. It worked to an extent, adding 17 percentage points to its holding and leaving it where it is today.

The put option on the remaining shares was at at €89.13 per Kabel Deutshland share at end-September, so exercising it would cost Vodafone €486 million.

The original deal gave Vodafone a full service portfolio in Germany, adding broadband Internet and TV services to its core mobile offer, and this latest instalment comes as fibre buildout in the market gathers pace.

Germany, Vodafone’s biggest market, has not been a stellar performer of late, with service revenue falling in the most recent quarter due to customer losses. But there has been significant growth since that 2013 Kabel Deutschland buy.

The telco’s top line in Germany came in at €7.3 billion in FY2013, the last full year before the deal, and it generated an EBITDA margin of 34.8 percent. Last year – the 12 months to the end of March 2022 – Germany revenue came in at just over €13 billion, with an adjusted EBITDAaL margin of 43.2%.

Those are just headline figures, of course. But they serve to demonstrate how Vodafone Germany has grown, in no small part due to a takeover deal that will have cost the best part of €10 billion over 10 years.

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