Germany's third-largest cable operator buys the number four player, PrimaCom, to gain scale and help ward off unwelcome bids.

July 16, 2015

3 Min Read
Tele Columbus Bulks Up With $775M Acquisition

Germany's third-largest cable operator, Tele Columbus, is buying the market's number four player, PrimaCom Holding GmbH, for €711 million (US$775 million) in an effort to become more competitive, benefit from economies of scale and accelerate service innovation, the company announced Thursday morning.

It also looks like a move designed to ward off unwelcome bids, as both Tele Columbus AG and PrimaCom AG (Nasdaq: PCAG; Frankfurt: PRC) have been cited as potential takeover targets for Deutsche Telekom AG (NYSE: DT). (See Eurobites: Deutsche Telekom Stalks Cable Prey.)

Once the deal closes at the end of this month -- it doesn't need regulatory approval -- Tele Columbus will provide TV, broadband and voice services to 2.8 million homes across Germany (it currently has almost 1.7 million customers). Combined, the two operators generated revenues of €345 million ($376 million) and adjusted EBITDA of €168 million ($262 million) in 2014.

"This is a transformational transaction for Tele Columbus, strengthening our position as the number three player in the German cable market," said Tele Columbus CEO Ronny Verhelst in the operator's official announcement. "Strategically and economically, this is a highly logical combination with significant network overlap between the two businesses and complimentary [sic] Housing Association customer bases."

Investors like the deal: Tele Columbus, which held its IPO earlier this year, saw its share price gain 7.7% to €13.60 ($14.82) in morning trading on the Frankfurt exchange.

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Competition for triple-play customers is intensifying in the German market as Deutsche Telekom invests in technologies such as vectoring (and looks to G.fast in the near future) to boost the capabilities of its copper access network and develops its video/TV services. (See DT's Höttges Says Hybrid Is 'Not Answer to Cable' and DT Expands Its Vectoring Commitments.)

Germany's cable operators, including market leaders Kabel Deutschland and Unitymedia GmbH , have in turn been investing in DOCSIS 3.0 capabilities. (See Tele Columbus to Launch 400Mbit/s Service.)

Tele Columbus had tried an alternative approach to consolidation in the past, having struck a deal more than two years ago to be acquired by Germany's largest cable operator, Kabel Deutschland, but that deal was sunk by the competition authorities in September 2013. (See Kabel Deutschland Buy in Jeopardy.)

Kabel Deutschland is now owned by Vodafone Group, which agreed to pay €7.7 billion ($8.4 billion) for the business in mid-2013 in order to compete more effectively against Deutsche Telekom in Germany's broadband market. (See Euronews: Vodafone Strikes €7.7B Kabel Deal.)

However, Vodafone is currently in discussions about swapping certain European assets with cable giant Liberty Global Inc. (Nasdaq: LBTY), the owner of Unitymedia. (See Vodafone in Asset-Swap Talks With Liberty.)

Analysts reckon a deal could see it exit Germany in exchange for Liberty's Virgin Media Inc. (Nasdaq: VMED) business in the UK, where it still lacks a strong fixed-line presence. (See Vodafone Could Buy Virgin Media, Quit Germany, Says Analyst.)

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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