MERGER & ACQUISITION

Kabel Deutschland and Acquisition Decision

INTRODUCTION1

DISCUSSION1

Company Overview2

Business Operations3

Assessment of Financial Health4

Cost of Capital for Kabel Deutschland8

Weighted Average Cost of Capital (WACC)9

Discounted Free Cash Flows (DFCFs)10

Value of Kabel Deutschland13

Value Comparison with Kabel Deutschland's Book Value15

Value Comparison with Kabel Deutschland's Market Capitalization17

Potential Benefits and Drawbacks of Acquisition19

Potential Issues of Corporate Governance20

Recommendations20

CONCLUSION21

REFERENCES22

APPENDIX25

Appendix A - Figures25

Appendix B - Tables30

Kabel Deutschland and Acquisition Decision

Introduction

The paper aims at evaluating the acquisition agreement between Vodafone and Kabel Deutschland. The paper initiates with a brief overview of the acquisition deal between the two companies. The paper provides detailed information regarding business operations and financial health of the target company. In the light of theory and practical approach, the paper calculates and describes cost of capital of the target company. In addition to this, the paper uses discounted free cash flows model in order to estimate value of the target company. Then, the paper compares it with the book value and market capitalization of the target company.

In the light of academic literature, the paper critically evaluates these findings in order to identify potential benefits and drawbacks of this offer. Moreover, the paper takes into account possible issues of corporate governance that may provide strong basis for recommendations. Finally, the paper provides conclusion on the overall understanding of the merger and acquisition decision in a publicly traded company.

Discussion

According to Thomas (2013, p. n.d.), recent meetings between the officials of Vodafone and Kabel Deutschland turned out to be prospective for Vodafone investors. According to business press release, Vodafone agreed to buy German target company at the cost of € 7.7b (£ 6.5b) cash payment (Holton & Ten Wolde, 2013, p. n.d.). Since 2007, it is the biggest deal to acquire the fixed line telecom network of Europe. The acquisition is likely to improve and expand the share of Vodafone within the telecom sector of the UK (Holton & Ten Wolde, 2013, p. n.d.).

Analysis showed positive market signals about the acquisition of Germany's largest cable operator (Holton & Ten Wolde, 2013, p. n.d.). The decision has resulted in 37% increase in the pre-takeover price of target company's shares. The offer has valued each share of the target company at the price of €87 (£74) (Thomas, 2013, p. n.d.). In addition to this, the acquisition offer is composed of all business assets and liabilities that enhanced the worth of Kabel Deutschland from €5b to €10.7b (Thomas, 2013, p. n.d.).

Along with business acquisition, Vodafone has accepted Kabel Deutschland's net debt of €3bn (Thomas, 2013, p. n.d.). Market analysis of the deal has identified this offer to be in favour of the acquiring company. Hence, comprehensive analysis of this acquisition offer is conducted in order to recommend Vodafone about the prospects and potential benefits of this offer (Thomas, 2013, p. n.d.).

Company Overview

Kabel Deutschland Holding AG (KBDHF) is the largest cable operator in Germany and provides services in telecommunication sector (CBR, 2013, p. n.d.). Since existence, Kabel Deutschland has well established its brand image as a mobile virtual network operator ...