Why The Kabel Deutschland Acquisition Is Ready To Boost Vodafone Group Plc

Today I am looking at how Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) recent acquisition of German telecoms specialist Kabel Deutschland bodes well for future earnings growth.

German invasion ready to bolster earnings

Vodafone said yesterday that its move to acquire Kabel Deutschland — news that was initially announced back in June — had received the official ‘thumbs up’ from the German entity’s shareholders. The agreement now leaves Vodafone with a 76.57% holding in the business.

Finalisation of the £6.6bn deal now depends on the completion of a domination and profit and loss transfer agreement under the Stock Corporation Act, something that in reality represents a mere formality for the British company to undertake.

The foray into Germany gives Vodafone an excellent entry point to the bountiful sphere of multi-services entertainment covering the television, broadband and telephone spaces.

Kabel Deutschland is the country’s biggest cable network operator, and Vodafone has said that it recognises the “significant potential to accelerate the growth in Vodafone’s and Kabel Deutschland’s broadband, telephony and TV businesses by leveraging Vodafone’s leading brand and extensive distribution and by cross-selling to each company’s customer base“.

As M&A activity looks set to heat up across the multi-services telecoms sector,  Vodafone’s takeover of Kabel Deutschland move represents something of a coup in my opinion. Vodafone estimates that the deal will give it access to 32.4 million mobile telephone, 5 million broadband, and 7.6 million direct television customers in Europe’s largest economy.

And Kabel Deutschland’s latest trading update outlined the stunning progress the company is making in the online and phone sectors, a key growth area for Vodafone. In July-September, the German firm saw its Internet and Phone division add a net 84,000 subscribers, speeding up from the 71,000 new customers in the previous three-month period. Kabel Deutschland’s total number of broadband subscribers now stands at well over two million.

Additionally, the company is also witnessing surging activity in the television space, particularly in the premium TV sector — Kabel Deutschland saw individual subscriptions here rise 390,000 in the year ending April 2013 alone, to 2.1m. And the telecoms giant saw new customers here rise 55,000 during July-September, resuming traction after a slow first quarter that saw 24,000 net additions.

With more than 15.3 million homes plugged into the Kabel Deutschland network, and a current customer base in the region of 8.5 million households, there is plenty of upside for Vodafone to latch onto through its European tie-up.

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> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended Vodafone.