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The Deal: Vodafone Stands Firm on Kabel Bid

NEW YORK ( The Deal) -- U.K. cellphone services company Vodafone Group (VOD) on Monday, Sept. 9, said it wouldn't sweeten a €7.7 billion ($10.2 billion) cash offer for Germany cable business Kabel Deutschland Holding amid concern acceptances may fall short of the stipulated 75% minimum.

Kabel shareholders face a deadline of midnight German time to tender their stock.

"There will not be any additional acceptance period should the 75% acceptance condition not be met by Wednesday, 11 September 2013," the bidder said.

Vodafone's announcement follows the arrival of hedge funds on the Kabel register after Vodafone announced an agreement with the target's board. Although investors generally wait until the last minute to tender shares, analysts say the new shareholders may be trying to pressure Vodafone into bumping the price higher.

"I said early on I didn't think the offer was high enough. It's going to be tight but it'll probably squeak by," said Commerzbank analyst Heike Pauls. She has a reduce rating on the shares.

On Sept. 2, Paul Singer, head of hedge fund Elliot Associates, disclosed a 5.1% Kabel Deutschland stake. A number of banks, including Credit Suisse Group, Bank of America Merrill Lynch and JP Morgan Chase also made similar announcements, though it's unclear if they were buying the shares for themselves or fund customers.

"We think the deal will proceed and their efforts to have the bid raised will prove fruitless," said M.M. Warburg & Co. analyst Malte Rather. He has a hold rating on the stock. "We think it's a very attractive offer."

Despite Vodafone's Monday statement, Rather said the U.K. company could, at the last minute, decide to prolong the offer and improve the terms.

Vodafone is an obvious target for shareholders looking for an easy buck - the telecommunications giant earlier this month agreed to sell a 45% stake in its U.S. Verizon Wireless venture to its partner Verizon Communications (VZ) for $130 billion.

Vodafone, of Newbury, England, wants to use the proceeds to bolster existing businesses and expand in emerging economies. Kabel Deutschland will allow Vodafone to move expensive data traffic off its cellular network more quickly. It will also be able to offer customers cable TV services and gain access to Kabel's customers.

Kabel Deutschland shares slipped 1.1%, or €0.90, in morning Frankfurt trading to €84.85, below the €87-per-share bid. That offer includes a €2.50-per-share dividend for the year ended March 31.

Written by Andrew Bulkeley

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