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The Deal: Vodafone Fails to Hit Squeeze-out Threshold in Kabel Bid

Tickers in this article: VOD

öNEW YORK (The Deal) -- The U.K.'s Vodafone Group  said Monday, Oct. 14, it had reeled in 76.6% of Germany's Kabel Deutschland Holding AG through its 10.7 billion Euros ($14.5 billion) offer, well short of a 90% squeeze-out threshold and opening the way to a sweetened payout for holdout investors. 

Those investors include Elliott Associates LP, whose emergence as a major Kabel shareholder over the summer sparked concern that hedge fund maneuvering could derail the offer. But Vodafone achieved the requisite 75% acceptances by Sept. 12, recasting the focus on the likely size of the post-takeover payout to minority investors and the potential duration of the inevitable legal wrangling. BlackRock  also remains a Kabel shareholder following the Sept. 30 close of Vodafone's offer. 

Dealmaking in Germany has long been popular among hedge funds with plenty of patience. When buyers move to squeeze out recalcitrant investors, courts generally rely on different valuations, awarding the remaining shareholders more than those who sold in the original offer. 

German politicians in 2011 updated German takeover statutes, lowering the squeeze-out threshold for stock companies to 90% from 95% but the legal wrangling has continued. 

Vodafone Monday said it would now enter talks with its new German unit about a profit-and-loss transfer agreement to control Kabel Deutschland and gain access to its profits. The discussions are largely a formality as profit-and-loss agreements only need the approval of 75% of a company's share capital. 

The Newbury, England company is flush with cash after this summer agreeing to sell its 45% stake in Verizon Wireless to Verizon Communications  for $130 billion. Vodafone CEO Vittorio Colao has pledged to use the cash to shore up existing operations and expand in developing countries. The Kabel deal has him making good on that pledge. 

The acquisition will allow Vodafone to cut the costs of running its German mobile network by using its new subsidiary's web of cables to carry traffic between masts. It will also be able to offer existing German customers cable TV services and to access Kabel's customers to sell them wireless services and other products. 

The European Commission approved the deal Sept. 20. 

Shares in Unterfohring, Germany-based Kabel rose 0.11 Euros to 90.96 Euros, above the 87 Euro offer. Vodafone shares rose 1.1%, or 2.50 pence, to 222.30 pence ($3.55).

Written by Andrew Bulkeley