The Seven Years’ War: Vodafone versus Elliott in Germany
The telecoms group and activist hedge fund have finally settled the terms of a 2013 takeover
Seven years later, Vodafone and Elliott give up the fight
For seven years, European telecoms operator Vodafone and activist hedge fund Elliott Management have duelled in Germany over the terms of a 2013 takeover. On Tuesday, the two sides finally settled hostilities.
Was this seven-year war worth it?
First, the background. The stand-off centred on Vodafone’s €7.7bn acquisition of Kabel Deutschland, a deal that would help the mobile-focused group move into broader telecoms services and compete with the likes of Deutsche Telekom and Telefónica.
Minority shareholders, including Elliott, which amassed about a 14 per cent stake, argued that the €87 per share offer for Kabel Deutschland undervalued the company. The US fund refused to accept the offer.
Vodafone was still able to take effective control of Kabel Deutschland by securing 76.8 per cent of shares, thanks to the peculiarities of German takeover law. But it failed to cross the 90 per cent threshold that would have allowed it to squeeze out investors who didn’t back the offer.
The same German rules also protect minority investors who don’t accept the offer, which Elliott and the other holdouts seized upon. And so began a multiyear lawsuit between Vodafone and Kabel Deutschland investors over whether the acquisition was fairly priced.
Finally, a German court ruled last year that the Vodafone offer was adequate, but minority shareholders appealed against the decision, triggering a new round of court cases that was set to last for years to come.
That was until Tuesday. Vodafone has made an offer to pay remaining investors €103 per share, or up to €2.1bn in total. In return, it has received undertakings from investors, including Elliott, which will take Vodafone’s stake in Kabel Deutschland up to 93.8 per cent.
Vodafone explained the logic of settling with the minorities by saying that, among other things, it reduces the group’s exposure to ongoing legal proceedings. It will also be able to stop paying the holdouts annual dividends of €3.17, something it has done for six years.
That means holdouts accepting the latest Vodafone offer will receive €103 in addition to the €19 they have already received in dividends over the years. That compares favourably to the initial €87 per share offer, even accounting for the duration of the investment. Reuters Breakingviews had a crack at crunching the numbers on the trade.
The length of the battle does mean that Franck Tuil, an Elliott portfolio manager who was best known for putting on these sorts of trades in Germany, wasn’t around to see the payday arrive for his group. Tuil left the company earlier this year after almost two decades.