The German cartel office has blocked Deutsche Telekom's planned sale of cable assets to the US group Liberty Media. But Liberty’s chairman John Malone is unlikely to accept that as the final answer.
The German regulator’s move has come as a disappointment to both parties. It is a blow to Liberty Media, who wants to strengthen its foothold in Germany as the nerve centre of its European operations.
At the same time it puts a dent in Deutsche Telekom’s plans to cut its net debt from 65.2 billion euro to 50 billion by the end of the year.
The cartel office reiterated doubts about Liberty’s plan, saying that the deal would "reduce competition in monopolistic structured markets."
Deutsche Telekom said it regretted the decision of the cartel office and would seek a new buyer for the assets.
Executives at Liberty Media declined to comment on the decision.
Debt Reduction Targets
Deutsche Telekom now faces a tall order to meet targets for debt reduction as planned.
"Deutsche Telekom is open to new negotiations with interested parties. The programme of systematic debt reduction shall continue," the company said in a statement on Monday.
Analysts foresee the company having problems in achieving their goal, as there are few parties interested in Deutsche Telekom’s cable assets.
Peter Mirsky, an analyst at SG Cowen, reckons that the market is only going to get worse. "There is a lot of pressure on Deutsche Telekom to get their balance sheets in order", he said.
That means, if Deutsche Telekom doesn’t manage to find another buyer, the company can only manage to balance its books if the flotation of T-Mobile, Deutsche Telekom’s mobile division, goes ahead as planned.
Liberty’s reluctance to meet the demands of the cartel office on upgrading Germany’s cable system has been the key issue in the cartel office’s competition proceedings.
But time is on Liberty’s side.
Although famous for his impatience with regulators, insiders said Liberty Media’s chairman John Malone is unlikely to give up on the German market in the long run.
Malone wants dominance of Germany’s cable television market. And according to Peter Mirsky, Malone is playing a waiting game.
While the German regulator’s objections may be inconvenient, "you cannot count him out at all", Mirsky said.
Malone’s aggressive acquisitions of cable operators and content producers have set off alarm bells for many German broadcasters, fearing he would only give them limited access to his cable network.
Malone envisages a European equivalent to his Tele Communications cable empire before he sold it to AT&T Corp.
The German regulator’s decision to block the deal on Tuesday therefore, may not be the last word on the matter for John Malone.