Liberty Global could face costly concessions or an expensive unraveling of its $4 billion bet on Germany after a court ruling threw its 2012 takeover of KabelBW into doubt.
The regional court in Duesseldorf, Germany, on Wednesday ordered the cartel office to re-examine the U.S. cable company's acquisition of KabelBW, which was approved at the end of 2011 and completed early last year.
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The ruling comes during an intense phase of consolidation in the telecoms market of Europe's largest economy where deals with a total value of almost 16 billion euros ($21.2 billion) are pending.
Liberty, which supplies TV, broadband and telephone services in Germany through its Unitymedia business in competition with Kabel Deutschland, Deutsche Telekom and Vodafone , has said it will fight the decision.
But if its legal challenge fails it will have to make additional concessions to assuage competition concerns, lawyers who are not involved in the case said, or unpick the deal.
"It's like unscrambling an egg," said Frederik Wiemer, from law firm Heuking Kuehn Lueer Wojtek. "It would be extremely complicated."
The closest Germany has come to the unwinding a company on a court's order was in 1999 when food wholesaler Lekkerland wanted to merge with Tobaccoland.
The deal was approved by the cartel office but the regional court in Berlin referred the case back to the supervisor. The ruling was eventually overturned by the federal court and the deal went ahead.
More recently, in November, the cartel office ordered that a long-time joint venture between chemicals distributor Brenntag and CVH should be dismantled, which was later put on hold by the Duesseldorf court.
SPLIT OR CONCESSIONS
Outside Germany, examples of competition authorities dismantling companies include the split-up of Standard Oil in 1911 and the creation of the "Baby Bells" from AT&T in the 1980's, both in the United States.
"In the end it all comes down to a business decision: do we take the stricter remedies or abandon the transaction and unwind it or parts of it, which will be complicated and costly," said Jens-Olrik Murach, a competition lawyer at Gibson, Dunn & Crutcher LLP.
A split could be done. "The main assets of a cable company are the cables, which are in the ground and will remain there. In that sense it would be easy to separate the assets," said Wiemer.
"It would be less complicated than to unravel a merger between two chemical companies, which have been closing plants and laying off people in the merger process," he said.
The best way for Liberty to save its business would be to offer more concessions, lawyers said.
As an original condition of the deal, Unitymedia had to give real estate companies and housing associations the opportunity to cancel their multi-year contracts with KabelBW, to allow rivals into the market.
Unitymedia could now offer to divest more contracts, which would be a bitter pill as the company has been winning customers from Deutsche Telekom with its expansion into broadband by offering internet speeds often five times faster than competing services.
While it is not allowed to directly appeal against this week's court ruling, Liberty can complain to a federal court, which could then open the door for an appeal.
Should the cartel office decide to block the deal after taking a second look, Liberty could turn to Germany's Economy Minister Philipp Roesler.
Roesler would not look at the competition aspect of the case, but could give the deal the go-ahead if he felt it was in the public interest or benefited the German economy.
This has happened only a few times, for instance when E.ON bought Ruhrgas about 10 years ago.
"It is not likely that Liberty or Unitymedia will request such clearance before the elections on September 22. It would make more sense to wait until after the elections," said Hanns-Christian Salger, Professor Commercial, Corporate and Competition Law at the Institute of Law and Finance at the Frankfurt University.
(Reporting by Harro ten Wolde; Editing by Thomas Atkins and Erica Billingham)