Hedge fund Elliot demands new Kabel Deutschland audit

13 Jan 2015

Kabel Deutschland has announced that it had received a request from US hedge fund Elliott Management Corporation to hold an Extraordinary General Meeting (EGM) in order to review an auditor’s report which found that Vodafone Group’s October 2013 acquisition undervalued the German cable operator, Bloomberg reports. Elliott Management Corporation, which holds 13.5% in Kabel Deutschland, wants to appoint an independent auditor to investigate whether the cable company’s management informed investors accurately and in a timely manner about the takeover: ‘The findings of the special auditor’s report contain troubling allegations that pertain to the fair valuation of [Kabel Deutschland] and to breaches of duty by the company’s management and supervisory boards… A new special audit that looks at possible breaches of duty by Kabel Deutschland management would clear up the severe allegations raised in the report.’

As previously reported by TeleGeography’s CommsUpdate, a special auditor’s report published in December 2014 found that there was a discrepancy between the price Vodafone Group paid for German cableco Kabel Deutschland and the value of the company. Vodafone officially announced its intention to acquire Kabel Deutschland for EUR7.7 billion (USD10.6 billion) and EUR3 billion of net debt in June 2013. After launching a voluntary public takeover offer, on 13 September 2013 Vodafone said that the 75% minimum acceptance condition had been met, and following European Commission approval, the transaction completed on 14 October 2013 with Vodafone holding 77% of the cableco’s share capital. However, in July 2014 Elliott and investment management firms Davidson Kempner and York Capital sued Vodafone for a higher compensation. The funds had tendered some of their shares to enable Vodafone to complete the deal. Elliott has asked for between EUR225 and EUR275 per share of Kabel Deutschland, notably higher than the EUR84.53 in cash that Vodafone had offered. The auditor’s report allegedly states that valuations by investment banks based on the company’s long-term planning indicated a value for Kabel Deutschland of EUR104 per share (excluding additional synergy effects estimated at up to EUR19.50 a share).

Germany, Kabel Deutschland, Vodafone Group