German cable operator Tele Columbus has agreed to pay €608 million (US$689 million) for smaller rival Pepcom and create a company serving more than 3.7 million German homes.
The deal will bring together Germany's third- and fourth-biggest cable operators, producing a stronger rival to market leaders Kabel Deutschland GmbH and Unitymedia GmbH , and marks the latest example of consolidation in the country's cable sector.
Tele Columbus AG has already snapped up PrimaCom AG (Nasdaq: PCAG; Frankfurt: PRC), paying €711 million ($805 million) for what was previously Germany's number-four player in July, while an asset swap involving Vodafone Group plc (NYSE: VOD) and Liberty Global Inc. (Nasdaq: LBTY) could even result in a merger of Kabel Deutschland and Unitymedia. (See Tele Columbus Bulks Up With $775M Acquisition.)
Vodafone owns Kabel Deutschland, having paid €7.7 billion ($8.7 million) for the company in 2013, while Liberty Global is the parent of Unitymedia.
In June, the two companies confirmed they were in discussions about exchanging various assets in Europe and analysts have suggested Vodafone may be looking to quit Germany while bulking up in the UK. (See Vodafone in Asset-Swap Talks With Liberty and Vodafone Could Buy Virgin Media, Quit Germany, Says Analyst.)
Telecom incumbent Deutsche Telekom AG (NYSE: DT) may also be looking to acquire cable assets to expand its portfolio of services and take rivals out of the market.
The operator was said to have expressed interest in acquiring smaller cable operators, such as Tele Columbus and PrimaCom, before those two companies agreed to merge. (See Eurobites: Deutsche Telekom Stalks Cable Prey.)
Earlier this month, Deutsche Telekom was further reported to have said it would oppose any attempt by Vodafone and Liberty Global to merge their German operations out of concern the combined entity would have a dominant position in Germany's TV market.
In any case, German competition authorities seem likely to take a dim view of proposals to merge the country's two largest players given the potential repercussions for consumers.
In its statement on the just-announced deal, Tele Columbus noted that Pepcom currently serves around 580,000 subscribers and covers about 810,000 homes with its network -- mainly in the cities of Munich, Nuremberg, Leipzig and Frankfurt am Main.
Pepcom also has a 70% stake in a Bavarian TV and cable company called KMS, with Vodafone owning the other 30% through its control of Kabel Deutschland.
Tele Columbus points out that Pepcom generated revenues of €126 million ($143 million) and adjusted EBITDA of €57 million ($65 million) last year, compared with its own revenues of €213 million ($241 million) and adjusted EBITDA of €99 million ($112 million).
As a result of the merger, it expects to realize annual operating cost synergies of €13 million ($15 million) and capital expenditure synergies of €2 million ($2.3 million) within 24 months of closing the transaction.
Tele Columbus reckons the deal will help it to boost growth in revenues from Internet, telephony and premium TV services across the combined customer base.
After taking into consideration Pepcom's debts and Vodafone's 30% stake in KMS, Tele Columbus is facing a purchase price of €505 million. It plans to finance the takeover through a mixture of cash and debt and expects to finalize it by the end of this year or early in 2016.
Although Tele Columbus remains much smaller than Germany's biggest broadband players, it claims to offer the highest-speed connections in the country.
Introduced earlier this year, its 400Mbit/s offering is twice as fast as the 200Mbit/s services that both Kabel Deutschland and Unitymedia tout as their speediest. (See Tele Columbus to Launch 400Mbit/s Service.)
Deutsche Telekom claims to be able to provide 100 Mbit/s over its vectoring-enabled VDSL network but hopes to improve this to as much as 250 Mbit/s by investing in a technology called super-vectoring, which has been developed by China's Huawei Technologies Co. Ltd. (See DT Expands Its Vectoring Commitments.)
— Iain Morris, , News Editor, Light Reading