The €7.7 billion that Vodafone Group paid to gain control of Kabel Deutschland last year was less than the German cable player’s true value, according to an audit.
Financial Times reported that the audit concluded that Kabel Deutschland’s projections and valuation suggested it was worth €104 per share, compared to the €84.53 offered to minority shareholders by Vodafone.
According to the report, the additional cost savings and synergies resulting from the merger could have added another €23.50 per share.
The news will boost the case of US hedge fund Elliott Management, which is suing Vodafone for a higher payout to the German company’s shareholders.
Elliott’s 13 per cent stake in Kabel was not enough to prevent Vodafone gaining the 75 per cent approval needed to complete the deal in October 2013.
In November 2014, Elliott argued in a letter to its own investors that Kabel Deutshland was actually worth as much as €250 per share, making Vodafone liable for up to €8 billion in compensation if a court supported the valuation.
Vodafone told Financial Times that Elliot’s conclusions are “unrealistic” and noted that its offer was “unanimously recommended” by Kabel Deutschland’s boards.
A Vodafone representative said the share offer represented a premium of 51 per cent to the weighted average share price of Kabel Deutschland in the three months to 12 February 2013, the last day unaffected by rumours of Vodafone’s interest.
Under German law, Vodafone must pay Elliott a dividend of 5 per cent above Germany’s base interest rate until the situation is resolved. The hedge fund retains the right to sell its stake with just five days’ notice, using a so-called put option to Vodafone at €84.53 per share.
The acquisition of Kabel Deutschland by Vodafone is part of its wider strategy to offer quadplay services (mobile and fixed voice, broadband and pay-TV) in more of its markets.
It also acquired Spanish cable service provider Ono for €7.2 billion in March this year and reached a fibre-sharing agreement with rival Portugal Telecom in July. Most recently, it inked a deal to acquire a majority stake in Greek fixed and broadband player Hellas Online.
Vodafone has also been linked to a bid to acquire international cable company Liberty Global, which owns Virgin Media in the UK. Vodafone has however, distanced itself form the rumours.
The rumour emerged after UK telecoms giant BT revealed that it is in talks to acquire either O2 or EE. If one of the deals came to pass, it would put BT in an extremely strong position to offer quadplay services, leaving Vodafone at a disadvantage — hence its potential interest in Virgin Media.