Vodafone has offered EUR 7.7 billion for Kabel Deutschland, valuing the German cable operator at EUR 87 a share. Based on a Business Combination Agreement signed with the board of Kabel Deutschland, Vodafone will pay EUR 84.50 per share cash, and shareholders will also receive a EUR 2.50 per share dividend for the current fiscal year, to be confirmed at KDG's annual shareholders meeting in October. In addition, Kabel Deutschland has about EUR 3 billion in debt that would be assumed by Vodafone. The offer is a 37 percent premium on KDG's share price in February, when news of a possible bid first emerged.
KDG said its board plans to recommend the bid to shareholders, and management will tender their shares to Vodafone. Kabel Deutschland will remain a separate legal entity with its headquarters in Unterfoehring (near Munich), and its management will oversee the entire fixed-line business of the merged companies, including product development and marketing.
Vodafone and KDG expect significant synergies from the merger from cross-selling to each other's customers as well as in network infrastructure and procurement. Vodafone said its existing DSL customers would be migrated to Kabel Deutschland's network where possible. Outside the KDG footprint it will continue to offer DSL services, or VDSL based on its recent agreement with Deutsche Telekom. This will offer savings on network maintenance, and the operator also sees room to combine customer service and administration functions.
Vodafone said the synergies from costs and capex should reach EUR 300 million a year by the fourth year after completion of the merger, and total a net EUR 3.0 billion after integration costs. Revenue syngeries are estimated at EUR 1.5 billion from cross-selling and enhanced customer loyalty. The takeover is also expected to add to EPS and free cash flow from the first year, excluding an estimated EUR 300 million in integration costs in the first four years. Vodafone is financing the deal from existing cash and bank facilities. Pro forma for the deal and the Verizon dividend, its net debt will increase to 2.4x annual EBITDA from 2.0.
