Analysts cool on Vodafone’s ‘risky’ Kabel Deutschland deal

Moody’s has said that the benefits to Vodafone of acquiring Kabel Deutschland could be outweighed by the associated financial risks.

UK telco Vodafone beat Liberty Global to German MSO KDG in a €7.7 billion (US$10.1 billion) deal announced earlier this week. The agreement still needs clearance from the European Commission, but is expected to close in Q4.

Credit ratings agency Moody’s said the purchase price of over 12 times EBITDA earnings was above the multiple currently paid for European cable companies.

“While the combination of Vodafone and KDH should lead to substantial synergies, both in terms of costs and capex and in terms of revenues, there is nevertheless a degree of execution risk in delivering these synergies,” Moody’s noted.

It added that the KDG deal will improve Vodafone’s profile in Germany, its largest market in Europe and reduce its dependence on the network of Deutsche Telekom.

However, financing the deal will also mean Vodafone increasing its debt load and Moody’s has placed the company’s rating on review for downgrade.

“Placing Vodafone on review for downgrade reflects our view that the potential benefits of acquiring KDH could be outweighed by the heightened financial risk implied by the increased debt burden,” said Iván Palacios, a Moody’s vice president, senior credit officer and lead analyst for Vodafone.


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