Apollo on top in cable consolidation push

Apollo Management saw off BC Partners in private equity’s ongoing battle for hegemony in the German cable business.

Iesy, a German regional broadband cable company owned by Apollo, beat BC Partners’ TeleColumbus in the auction for ish, the cable company in the North Rhine Westphalia region. Iesy, which covers the Hessen district, is acquiring its rival in a deal worth around €1.55bn.

The merger of the groups follows months of consolidation in the German cable market. Apax, Goldman Sachs and Providence recently sold their 20% stake in ish to TeleColumbus.

The merger of iesy and ish will create Germany’s second-largest cable operator, with some 5.3m subscribers. It will rival Kabel Deutschland (KDG) Germany’s largest cable company, which is owned by Apax, Goldman and Providence.

KDG’s attempts last summer to create a 17.2m subscriber company by acquiring iesy, ish and Kabel BW were rejected by antitrust authorities.

It is not hard to see why private equity firms are jostling for position in this particular sector. The owners of KDG have extracted around €1.5bn from the company through special dividends, more than doubling an initial investment of €663m.

Kabel Baden-Wuerttemberg, Germany’s other main cable group, is controlled by Blackstone and CDP Capital Partners of Canada.

Iesy will finance the acquisition through €350m in cash from its balance sheet, which includes a €215m high-yield bond and a €230m senior loan raised earlier this year. The company is also planning a new €750m loan, with a €400m–€450m bond to make up the balance JP Morgan and Citigroup, which led the original financing, are arranging the new debt, along with Deutsche Bank. Total leverage is expected to be comfortably within a multiple of 6.75x. Existing shareholders in ish, which include hedge funds and banks, will have a chance to roll over their equity interests.

The merger hinged on settling a claim against parties involved in the auction of ish when Callahan Nordrhein-Westfalen GMBG filed for insolvency. The various suits had threatened to jeopardise an auction of ish over the past few months, as any buyer would have then been liable.

Bondholders subsequently agreed a deal to settle claims against various parties, including James Bonsall of Alix Partners, who led the restructuring of ish. The settlement will pay €145m to the insolvent estate. As a result, the holders of the €1.2bn Callahan holdco bonds will receive an average recovery of more than 12% under the new agreement.