KDG promotes German cable
Source: Handelsblatt No. 214, November 4, 2008, page 13
- The industry leader wants to merge the three largest cable network operators
- Unitymedia forgoes initial public offering
Germany's largest cable company, Kabel Deutschland (KDG), is keeping up the pressure. Four years after its last takeover attempt, foiled by the veto of the German Federal Cartel Office, Germany's largest cable network operator once again wants to acquire competitors. "A nation-wide provider for cable would serve the market and thus the consumer", KDG CEO Adrian von Hammerstein told the Handelsblatt.
According to the manager, no concrete negotiations have yet been initiated. But KDG is interested in purchasing and operating networks in all of Germany. On the one hand, it would make it easier and more efficient to attract new customers. On the other hand it would permit the existing technical infrastructure to be better exploited.
Back in 2004, KDG tried to take over Kabel Baden-Wuerttemberg as well as competitors in the states of Hesse and North Rhine-Westphalia. But the German Federal Cartel Office prohibited the purchase, since the custodian of competition feared a market-dominating position. However, this situation has apparently changed in the meantime. Upon inquiry, a speaker for the Federal Cartel Office said that a shift in the market for digital cable would also change the point of view of the public authority. But currently there are no pending inquiries from any of the cable companies.
In fact, the competition in this country has undergone fundamental changes in the past four years. Deutsche Telekom as well as other telecommunication companies in the meantime transmit TV signals over their network and thus compete with KDG in its core business. Conversely, KDG also now provides telephone and internet connections. In the business slang of the sector, offerings made up of telephone, TV and internet are called "Triple Play".
KDG CEO von Hammerstein therefore demands: "In our opinion, the cartel office should adapt the market definition." Good industrial policy calls for a liberalisation of competitive conditions.
According to KDG, it would strengthen cable as an infrastructure competitor to DSL.
KDG has already been able to feel this shift in viewpoint recently when taking over selected cable networks from Orion. For the first time, the "positive effects of our telephony and internet activities were taken into consideration," reports Hammerstein.
It is possible that soon there will be no lack of purchase opportunities in the cable industry. Unitymedia, number two on the German cable market, was already preparing for its IPO this fall. However, the financial crisis has destroyed the plans of CEO Parm Sandhu for the time being. Now both the major shareholders BC Partners and Apollo are feeling out the situation. A possible sale is apparently an option. "A takeover by a strategic investor is one alternative," is the rumour in shareholder circles.
The owners are being welcomed with open arms by the executive board of Unitymedia. One single large cable company would correspond to "industrial logic", is the message from the circle around CEO Sandhu. Unitymedia would be an ideal fit to KDG. The Cologne based company is primarily present in North Rhine-Westphalia and Hesse. The company provides 8.7 million households and achieved revenues of about a billion euros last year. Its net losses amounted to 49 million euros.
KDG belongs to the finance investor Providence, which completely took over the Munich enterprise three years ago. Previously, Apax and Goldman Sachs were also on board. Kabel Deutschland (KDG) reported a net loss of almost 34 million euros at revenues of nearly 1.2 billion euros for the fiscal year until end of March 2008. Earnings before interest, taxes, depreciation, and amortization (Ebitda) rose by almost 20 per cent to a record amount of nearly 458 million euros. That the company's bottom line is nevertheless red is due to the high interest and amortization payments, which are usual for companies belonging to finance investors. KDG is encumbered with about three billion euros in debt. Nevertheless, its financing is not in danger, despite the bank crisis: "Our current financing structure calls for the first repayments only in 2012. Thus, we are not under pressure."
KDG operates the cable networks in 13 German federal states. The company reports having sold eleven million subscriptions for TV cable. This figure is supplemented by about one million contracts for internet and telephone connections. The industry's frontrunner has invested 500 million euros in expanding its networks in the past three years.
Crisis-proof cable
Cable companies are considered crisis-proof: an economic downturn hardly effects its business, or only belatedly, since the agreements with the housing associations have long terms. The contracts with private customers for Triple Play (TV, telephony, internet) run for one year. The cable industry emphasizes inexpensive offers in this sector.
The financial crisis is therefore not a reason to forego takeovers, according to Adrian von Hammerstein, head of Kabel Deutschland. "We are not as susceptible to economic swings as for example the automotive industry," says the former boss of Fujitsu-Siemens-Computers. At the moment there are no plans for any further reduction of jobs.
Authors of original text: Hans-Peter Siebenhaar und Joachim Hofer, Munich
Translation by KDG.