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Kabel BW bids are in, but are they really high enough to win the prize

The continual misinformation about bids for one of the leading German cable TV operators, cable operator Kabel Baden-Wuerttemberg, continue

By PETER WHITE

Published: 3 March, 2011

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The continual misinformation about bids for one of the leading German cable TV operators, cable operator Kabel Baden-Wuerttemberg, continue. On the one hand shortly after the deadline for bids was up on February 17th, five bids had been received, on the other the parent company is now saying that it might still prefer to take it public.

When asked if the bids were enough, insiders have suggested that they were close to the €3 billion that it has been hoping for. Our own calculations make this way out of the realms of likelihood, given that Kabel Deutschland Group (KDG) is barely valued that highly , and yet has almost 9 million customers, not 2.3 million. The company is being sold by Swedish private equity group EQT and it insists that it will get its asking price.

The obvious bidders who have acknowledged their interest are Liberty Global and a number of private equity groups including CVC capital Partners, Cinven,

Providence and Hellman & Friedman according to German press reports.

But a number of things make us wary of the sale price claims – first is that fact that suddenly, now the bids are in, EQT is suddenly more interested in an IPO, secondly Deutsche Telekom has just launched two major campaigns against cable – a wholesale content service for tier 4 cable companies across Germany with Sky, and its own free and paid satellite TV options which come with OTT and VoD and look similar to existing cable triple plays, which have been so successful over the past few years. Also rival Kabel Deutschland Group (KDG) cannot command anything like the value imputed for this Kabel BW deal on the public stock market, despite having almost 9 million customers. On the other hand Kabel BW has a healthier margin right now compared to the larger KDG and the value is only ten times margins, it says.

We believe this latest move by DT will erode confidence in the long term future of the Germany cable industry, and could undermine any deal prices for the sale of Kabel BW. Our bet is that once the Kabel BW owner EQT sees investor confidence erode, either it will sell off the property, but not announce the price, or quietly withdraw it from the market.

This is all a mirror of the process whereby KDG went public, with it putting itself up for sale and then opting for a last minute IPO. The CEO of KDG has been highly vocal about calling for the right for cable in Germany to consolidate, but since this could put something close to 20 million homes into a single entity, it has not been heeded in German anti-trust circles. However two major things have changed since German cable put together such a plan – first Unity media has been bought by Liberty Global, the largest cable group in Europe and the second largest in the world, which means that unless Liberty Global buys out all of German cable, there will always be more than one entity in the market, and Deutche Telekom has become increasingly aggressive in TV (see separate article) making the prospect of a merged, or part merged cable industry, far more sensible, needing scale to take on Deutsche. EQT bought Kabel BW from the Blackstone Group in 2006 for €1.3 billion and says it has spent around €500 million on expanding and digitizing the network.

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