German Court Overturns Liberty’s Kabel BW Deal

Ruling Could Break Up Germany’s Second Largest MSO

While cable legend John Malone searches for a way to make his U.S. cable holding – Charter Communications – bigger,  one of his prize European cable assets may be getting considerably smaller.

The international cable giant was dealt a setback Wednesday after a German Court ruled that governmental approval of its 2011 purchase of Kabel BW, making it the second largest cable operator in that country, was too lax.

Liberty Global’s German cable subsidiary Unitymedia agreed to purchase Kabel BW, which had about 2.4 million subscribers, in March 2011 for $4.2 billion, creating Unitymedia Kabel BW. The deal was finalized on Dec. 15, 2011, enlarging the second-biggest cable operator in the country to about 7 million customers, close behind the largest German MSO, Kabel Deutschland's 8.8 million subscribers.

On Aug. 14, the Dusseldorf Higher Regional Court ruled that Germany’s Federal Cartel Office – that country’s anti-trust agency – did not impose stringent enough conditions on the deal. According to published reports, the court said the Unitymedia/Kabel BW merger could lead to a dominant market position, upholding anti-trust concerns first voiced by competitors Netcologne and Deutsche Telekom.

The ruling now casts a cloud over the merger – if it is upheld the Federal Cartel Office will have to examine whether Liberty will merely have to comply with additional conditions or if the deal will have to be unwound.

In a statement, Liberty Global said it had not yet seen the full court ruling -- that will be made available by the court in the coming days or weeks -- but that it would "use all legal means available to us" to appeal the decision.

"Given the progress being made in market consolidation, we are convinced that infrastructure competition needs the combined Unitymedia Kabel BW company more than ever so that sustainable competition can be created with the three national companies [Deutsche Telekom], [Vodafone/Kabel Deutschland] and [Telefonica Deutschland/E-plus]," Liberty Global said in a statement.

Liberty Global had agreed to a host of conditions in 2011, including agreeing to remove encryption from digital free television, giving up exclusivity on certain large contracts and enabling competitors to bid on contracts with housing associations.

The court decision could cast a pall on another pending deal – European wireless giant Vodafone’s $10.2 billion acquisition of Kabel Deutschland. That transaction is also awaiting regulatory approval.