Vodafone Launches Bid for Kabel Deutschland

LONDON—Vodafone Group VOD.LN +0.03% PLC Monday launched a formal €7.7 billion ($10.1 billion) cash offer for Germany’s biggest cable operator Kabel Deutschland Holding AG, KD8.XE +1.70% signaling its ambitions to grow in Europe again with its biggest acquisition there in more than a decade and laying down a challenge to John

Vodafone put forward an all-cash offer of €87 a share, made up of €84.50 for the company and a previously announced €2.50 dividend. Kabel Deutschland management and supervisory boards intend to recommend the deal to shareholders who now have four to 10 weeks to tender their shares according to German takeover law. At least 75% of Kabel Deutschland shareholders must accept Vodafone’s offer for the deal to go ahead.

Vodafone Chief Executive Vittorio Colao described the offer price as “full and fair” on a conference call with reporters, with Chief Financial Officer Andy Halford talking up the cost and capital expenditure synergies of the deal.

The U.K. company’s formal bid comes amid rising interest in cable assets in Europe. Kabel Deutschland last week confirmed it had been approached about a potential tie-up by Liberty Global, itself having only recently completed its $24 billion purchase of U.K. cable-television and Internet provider Virgin Media Inc. Liberty Global also bought Kabel Baden-Wuerttemberg two years ago in a $4.5 billion deal and analysts expect it to come back with another approach for Kabel Deutschland.

A Liberty Global spokeswoman Monday declined to comment on the company’s plans following Vodafone’s formal approach.

The strong interest in Kabel Deutschland reflects its position as the last large, independent cable operator in Europe’s biggest economy, after Liberty Global acquired Germany’s number two and three players, Kabel BW and unitymedia.

For Vodafone, the deal would represent a strong push to broaden its product range from mobile, where profit has been squeezed by strong competition from cable operators that provide bundled services for fast Internet, mobile, fixed-line and TV. Vodafone is also hurting from regulatory changes across Europe and the grim economic climate.

Buying Kabel Deutschland would let Vodafone offer higher-speed broadband Internet services than it does now and save fees it now pays to Deutsche Telekom AG DTE.XE -1.86% for use of its network on the so-called last mile to customer households. Vodafone already offers a slower-speed fixed line Internet service.

Vodafone said it “sees significant potential to accelerate the growth in Vodafone’s and Kabel Deutschland’s broadband, telephony and TV businesses by leveraging Vodafone’s leading brand and extensive distribution and by cross-selling to each company’s customer base.” A combined group would have revenues of €11.5 billion in Germany, with 32.4 million mobile, 5.0 million broadband and 7.6 million direct TV customers in Europe’s biggest economy, Vodafone said.

Mr. Calao said a tie-up “will lead to the creation of an operator with significant competitive scale, attractive operating and capital investment efficiencies and a combined management team with expertise across all communications segments and technologies.”

Vodafone expects cost and capital expenditure synergies of €300 million-plus annually before integration costs by the fourth year of the deal being completed. It also expects the deal to be accretive to earnings per share and free cash flow a share from the first and second full year post completion, respectively.

Shares of Kabel Deutschland have risen around 35% since Vodafone’s interest in acquiring the German cable operator was reported earlier this year.

—Archibald Preuschat in Frankfurt contributed to this article.

Write to Eyk Henning at [email protected] and Lilly Vitorovich at lilly[email protected]