Report: Vodafone, Kabel Deutschland inch closer to a deal

Vodafone appointed Goldman Sachs to advise it on possible bid options for German cable company Kabel Deutschland, an unnamed source with direct knowledge of the matter told Reuters. Meanwhile, Kabel Deutschland, Germany's largest cable operator, has retained Morgan Stanley and advisors from Perella Weinberg to defend its interests in the event of a Vodafone approach, unnamed soruces told Reuters and Bloomberg

Vodafone, Goldman Sachs, Morgan Stanley and Kabel Deutschland declined to comment, according to Reuters while Perella was not immediately available for comment.

Vodafone's increasingly likely bid for Kabel Deutschland is seen as key to transforming the operator's future success in Germany, according to Sanford C. Bernstein analyst Robin Bienenstock.

Bienenstock said the company's main challenge is operational, since mobile activities alone won't be enough to keep Vodafone afloat in the face of exploding data traffic. In Europe, the future belongs to integrated companies that can transfer data via broadband and mobile networks while offering customers telephony and television services, the Bernstein analyst told the Wall Street Journal.

Bankers and some analysts speculate that the possible €10 billion deal would provide Vodafone Germany with the fixed infrastructure to fight off cut-price mobile operators and telecom and cable rivals promoting discounted, triple- and quad-play service bundles.

Vodafone could also save around €300 million a year by using Kabel Deutschland's fibre network instead of the rent it pays to Deutsche Telekom for fixed access into German households, according to Reuters.

However, the shape of a potential deal has been upset following Kabel Deutschland's bid to acquire the smaller competitor Tele Columbus Group collapsed earlier this week after German regulators said they plan to block the deal.

The regulators' stance on Tele Columbus "leaves Vodafone in a more difficult position than ever -- they could do nothing or buy an expensive partial solution," Bienenstock wrote in a note reported by Bloomberg. "If Vodafone buys Kabel Deutschland now they will need fibre wholesale" and lines beyond the German company's footprint, "keeping wireline prices high."

Bienenstock believes that without Tele Columbus, acquiring Kabel Deutschland would still mean that Vodafone will have to rent fibre capacity in some regions, including Germany's two most populated states, according to the Journal.

For more:
- see this WSJ blog post (sub. req.)
- see this Reuters article
- see this Bloomberg article

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