Telefonica-KPN Merger Has ‘Increasing Logic,’ Bernstein Says

Telefonica SA and Royal KPN NV should seek to merge as there is “increasing logic” for a combination of the Spanish and Dutch phone companies, a Sanford C. Bernstein & Co. analyst said.

“The two companies have gone from being the darlings of telco investors to sector laggards,” Robin Bienenstock, a Bernstein analyst in London, said in a research report today. “They have now lost the investment theses that have worked so well for them over the last five years: that of domestic stability and international growth.”

KPN shares have dropped by about 2.7 percent in Amsterdam trading in the past year, the fourth-worst performance on the 21-stock Bloomberg Europe Telecommunication Services Index. Telefonica stock has gained 3.2 percent in Madrid in the period.

Telefonica’s “domestic macro problems are understood but probably still underestimated,” Bienenstock said. The Madrid- based company’s Latin American growth is under threat as falling mobile prices encourage consumers to switch from fixed-line services and the growth plans of Mexican rival America Movil SAB, the region’s largest wireless carrier, increase pressure for investments.

KPN’s German business, which has boosted the Hague-based company’s growth in earnings before interest, taxes, depreciation and amortization since 2006, is now “set to flatline,” while marketing domestic fixed-line business “gets harder each year,” according to Bernstein.

Stefan Simons, a KPN spokesman, declined to comment on Bienenstock’s report. A spokesman at Madrid-based Telefonica also declined to comment.

To contact the reporters on this story: Chiara Remondini in Milan at

To contact the editors responsible for this story: Vidya Root at

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