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Vodafone offers €2.1bn to end German legal battle

The telecoms giant is looking to resolve the legal tussle over its takeover of Kabel Deutschland
December 24, 2020
  • The group acquired a 77 per cent stake in Kabel Deutschland in 2013 but minority shareholders have been contesting the takeover price
  • The €2.1bn deal will end a long-running legal battle but add to an already mountainous debt pile

Vodafone (VOD) has offered more than €2bn (£1.9bn) to buy out the minority shareholders in its German cable business. The group is attempting to resolve a long-running legal battle over the price of its takeover in 2013.

The telecoms giant purchased almost 77 per cent of Kabel Deutschland seven years ago for €87 a share, equivalent to €7.7bn. But certain Kabel Deutschland shareholders – including activist investor Elliott Management – lodged a legal challenge claiming that the offer was too low.

While a German court ruled in November that the takeover price was “adequate”, the minority shareholders subsequently launched an appeal that is expected to take several years to reach a conclusion.  

In order to reduce its exposure to legal claims, Vodafone is now offering €103 in cash for each outstanding Kabel Deutschland share. It has received irrevocable undertakings from shareholders representing 17 per cent of the company’s issued share capital, including Elliot and hedge fund DE Shaw.

If all minority shareholders accept the offer – and German regulators give the all-clear – the group will fork out €2.1bn from its existing cash reserves. That is expected to push net debt up to an incredible €46.1bn, although Vodafone contends that the deal will increase its adjusted earnings and free cash flow per share. It also eliminates the need to pay a €3.17 annual dividend to Kabel Deutschland’s minority shareholders.

Further balance sheet strain would have been eased by the proposed $2.4bn ($1.8bn) sale of its 55 per cent stake in Vodafone Egypt, but talks with Saudi Telecom have fallen through. Still, the group should be able to reduce its mountainous debt pile with the proceeds from listing its European tower infrastructure business. The IPO is expected to happen in early 2021 and could provide some much-needed momentum. Hold at 123p.

Last IC View: Hold, 124p, 16 Nov 2020