Elliott says Vodafone may face €8bn fee over Kabel Deutschland
Elliott Management has claimed Vodafone may have to pay out €8bn in compensation for undervaluing its stake in Kabel Deutschland.
The activist hedge fund known for its aggressive style, which has included suing numerous governments, said in a letter to its investors seen by the Financial Times that Vodafone had failed to provision fully for the potential liability in its accounts.
Elliott is suing Vodafone in a German court to pay a higher price than the UK group paid in last year’s takeover of the German cable operator. The hedge fund owns 13 per cent of Kabel Deutschland shares but has held out from tendering them because it believes the company is worth over €250 a share compared to the €84.53 that was offered.
Vodafone says it has paid a fair price for Kabel Deutschland in an offer that was accepted by over 75 per cent of the company’s shareholders, and that it has no intention of paying any more.
Under German takeover law, Vodafone must pay Elliott a dividend of 5 per cent above the German base interest rate until the case is resolved in court. At the same time, the hedge fund retains the right to sell its stake using a so-called put option to the telecoms company at the €84.53 price with only five days notice.
If the court were to decide that Elliott’s valuation of more than €250 per share was valid, Vodafone would then be liable to make up the difference in both the price and the dividend payments.
“The put represents a potential contingent liability in excess of €8 billion, equivalent to roughly 12% of Vodafone’s market capitalisation,” Elliott wrote. “This liability has been only partially provisioned for in Vodafone’s accounts and is not adequately reflected in sellside research reports on the company.”
Vodafone dismissed Elliott’s claim, reiterating that it would not raise its offer for the German company which it said it already counted as a full subsidiary.
“Nobody should take this seriously,” the company said. “These assertions are wholly without foundation and bear no relation to the facts. Vodafone’s offer of €84.53 per Kabel Deutschland share has been approved as appropriate compensation by an independent court-appointed auditor, and a valuation conducted by two independent auditors attributed a value of €75.76 per Kabel Deutschland share.”
The acquisition was seen by analysts as a key step in Vodafone’s strategy to expand its range of services from a traditional mobile telecoms focus to offering bundled deals of broadband, telecoms and television.
Germany is Vodafone’s largest market in Europe, and the group subsequently followed the Kabel Deutschland purchase with a similar deal to buy Ono in Spain. Kabel was Germany’s largest cable operator by customer numbers.
Analysts have said that Elliott’s goal was always to press Vodafone into raising the bid, although many see the price as reasonable given Kabel was already trading at a high multiple at about 10x earnings.
Vodafone also had competition from Liberty Global for the German business, which forced it to raise an initial offer.