Ratings agency Fitch has put Vodafone on negative watch afters its offer for Kabel Deutschland (release). The £6.6bn acquisition is Vodafone's biggest in six years.
Negative: Expectation of FFO adjusted net leverage being sustained above 2.5x would lead to negative rating action. Successful completion of the KD acquisition without Vodafone taking other measures to reduce debt would lead to a one-notch downgrade. Operationally, higher competitive intensity in key markets or a worsening of the eurozone crisis could put pressure on cash flow generation, which in turn could put pressure on the rating.
Positive: Measures taken to keep FFO adjusted net leverage below 2.5x on a sustained basis would lead to the ratings being removed from RWN and affirmed. This assumes that there is no significant deterioration in Vodafone's operating profile.
One top 10 shareholder, who asked not to be named, told City A.M. that while they understood the need to diversify into new services, they felt Vodafone had overpaid for Kabel Deutschland. “They are paying a big price because they have no choice, there are not many [acquisition opportunities] going around but I think [Vodafone] have looked at how much they can afford and found the biggest thing they can buy".