KPN Scraps Dividend to Finance Purchase of Web Spectrum

Royal KPN NV (KPN), the Dutch phone company partly owned by Carlos Slim’s America Movil SAB (AMX), cut its dividend as it spent 1.35 billion euros ($1.8 billion) to buy frequencies for faster mobile networks.

KPN will not pay a final dividend for 2012, after its 12- cent interim dividend, and 3 cents per share for 2013, the company said yesterday in a statement. That compares with a previous plan to pay 35 cents a share for this year and at least the same amount for next year. KPN also sold its Spanish Simyo operator to France Telecom SA (FTE) to raise cash.

Faster networks are key for carriers as consumers flock to smartphones such as Apple Inc. (AAPL)’s iPhone and handsets based on Google Inc.’s Android system to download music, watch videos online and surf the Web. KPN joins European peers including Deutsche Telekom AG (DTE), Telefonica SA and France Telecom that have slashed or completely scrapped their dividend plans as a result of rising spectrum investments and declining phone revenue amid the region’s debt crisis.

“That’s the cost of staying in business for KPN,” said Ulrich Rathe, an analyst at Jefferies International Ltd., who projects the Dutch company’s shares will underperform its peers. “The price is higher than we expected, but the dividend cut reflects underlying balance sheets issues as well.”

New Services

The Dutch government said it raised 3.8 billion euros from the spectrum auction, with Vodafone, Deutsche Telekom’s T-Mobile unit and Tele 2 also buying frequencies. Vodafone Group Plc (VOD) paid 1.4 billion euros and T-Mobile paid 911 million euros, according to the government.

“It’s a considerable investment, but we look ahead and not back,” KPN Chief Executive Officer Eelco Blok said on a conference call, adding that the Dutch auction was more expensive compared to other European markets. “I’m incredibly glad that we’ve gotten these frequencies.”

The company, based in The Hague, plans to introduce faster mobile services based on so-called long-term evolution technology in February and achieve countrywide coverage by the second half of 2014. The dividend cut will save the company 800 million euros, Blok said.

Blok, who in October reported a 32 percent drop in third- quarter profit, has also accelerated job cuts and plans to eliminate as many as 5,000 positions in the Netherlands by the end of 2013. KPN already had cut its 2012 dividend in July to 35 cents a share from previously 90 cents a share.

KPN yesterday reiterated its 2012 forecast for earnings before interest, taxes, depreciation and ammortization, cash flow and investments.

Lower Rating

Before the company said it would scrap its dividend, the stock dropped 1 percent to 4.63 euros in Amsterdam yesterday, giving the company a market value of 6.6 billion euros. On Nov. 15, KPN had dropped to the lowest price in 10 years after Sanford C. Bernstein cut its recommendation on the stock and Blok said he may temporarily accept a lower credit rating as he assesses options and need for investments.

KPN’s debt is rated BBB by Standard & Poor’s, the second- lowest investment grade, and an equivalent Baa2 by Moody’s Investors Service.

France Telecom’s local unit said it will have more than 12.2 million mobile phone customers after adding Simyo’s 380,000 customers, based on September data. No financial details of the deal were given.

Last month, KPN agreed to sell part of its German mobile- phone towers business to American Tower Corp. for 393 million euros in cash.

Failed Deals

Earlier this year, KPN tried unsuccessfully to sell Belgian mobile-phone unit Base and ended discussions on a potential merger involving its German E-Plus wireless unit and Telefonica’s business in Germany.

Blok said in October that KPN is in talks with investor America Movil to shape cooperation efforts after Carlos Slim’s wireless carrier obtained more than a quarter of the Dutch telecom operator’s shares in an unsolicited bid.

Slim, the world’s richest man, has expanded America Movil into Europe to take advantage of phone company valuations that have fallen during the euro-region crisis. The Mexican company said it bought 28 percent of KPN in June, the same month it purchased a stake in Telekom Austria AG. (TKA)

To contact the reporter on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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