America Movil SAB’s 2.6 billion-euro ($3.4 billion) offer to boost its stake in Dutch phone company Royal KPN NV pitches billionaire Carlos Slim against Telefonica SA’s Cesar Alierta in some of Europe’s most competitive markets.
America Movil is bidding for as much as a 28 percent holding in the Netherlands’ former telecommunications monopoly, whose stock had slumped 30 percent this year. Among KPN’s assets are German mobile-phone carrier E-Plus, which vies for the country’s No. 3 spot with Telefonica’s O2, and the Simyo wireless brand in Madrid-based Telefonica’s home market.
Slim last tried to acquire a major western European operator in 2007 with an offer for a stake in Telecom Italia SpA, before he was beaten by Alierta, Telefonica’s chairman and chief executive officer. The 72-year-old Mexican is returning after Europe’s three-year debt crisis left the region’s phone assets at bargains while subscriber growth is slowing in markets such as Brazil and Mexico, where Telefonica competes directly with America Movil. KPN said the offer is too low.
“The deal gives Slim more geographical options in Europe, especially in Germany,” said Bruno Lippens, who helps manage $9 billion at Pictet Asset Management in Geneva, including KPN shares. “There’s a lot of logic in consolidating Germany, for instance, into three players, with O2 or Vodafone buying KPN assets there. In today’s market, Slim has more financial flexibility than Telefonica.”
KPN said in a statement that America Movil’s offer of 8 euros a share in cash to increase its 4.8 percent stake “substantially undervalues” the company. The Dutch operator said it will seek further clarification of America Movil’s intentions and also will examine all strategic options.
A representative for Mexico City-based America Movil declined to comment today. In its statement late yesterday, the company said it expects to win approval from Dutch securities regulators and carry out the offer by the beginning of June.
KPN, based in The Hague, rose 17 percent to 7.58 euros at the Amsterdam close after earlier jumping as much as 22 percent. Before today, the stock was the worst performer this year on the Bloomberg Europe Telecommunication Services Index.
America Movil fell 8.2 percent to 17.13 pesos at the close in Mexico City, the biggest decline since Oct. 24, 2008.
The transaction is disappointing for America Movil shareholders who were seeking a big dividend or more share repurchases, said Carlos Sequeira, an analyst at Banco BTG Pactual SA in Rio de Janeiro.
“America Movil’s investment in KPN is relatively small, but the shift in strategy is what concerns us,” Sequeira said. “A more important expansion into Europe may mean America Movil’s investors will receive less cash than what they had hoped for.” Sequeira lowered his recommendation on America Movil shares to “neutral” from “buy.”
KPN is among western Europe’s cheapest telecommunications stocks, trading at a price-to-earnings ratio of 7.5 times before today’s surge, less than half the regional industry average of 17 times, according to data on 40 companies compiled by Bloomberg.
KPN’s ratio of net debt to Ebitda, a measure of liquidity, was 2.46 times, up from 2.15 a year earlier. The ratio was smaller than Telefonica and Portugal Telecom SGPS SA and larger than Deutsche Telekom AG and France Telecom SA.
E-Plus, with 23 million wireless customers at the end of the first quarter, is under pressure after it became the only one of Germany’s four mobile operators to fail to secure wireless spectrum in the coveted 800-megahertz band. That means E-Plus will have to partner with rivals to expand service.
O2 Germany boosted its customer base by 6 percent last year to 24.5 million. O2 and E-Plus compete with Deutsche Telekom AG and Vodafone Group Plc in the largest European wireless market.
Slim, a New York Yankees fan who still drives his own car around Mexico City, entered the phone industry in 1990, buying the state-run phone company in a privatization sale. He learned his business acumen from his father, a Lebanese immigrant who acquired property in Mexico City to take advantage of cheap real estate during the upheaval of the 1910 revolution.
“The most obvious place to create value within KPN is through the sale or merger of its subscale German business with the assets of Telefonica,” said Robin Bienenstock, an analyst at Sanford C Bernstein in London. “Slim is buying an option to build incremental pressure and a growing headache for Alierta when it comes to a potential negotiation of KPN assets in Germany.”
KPN’s German business has an enterprise value, which includes debt, of 8.7 billion euros, according to her estimate.
Alierta, who studied law at Zaragoza University and has a MBA degree from Columbia University, has repeatedly denied that Telefonica will pull out from other European countries including Germany, the U.K. or the Czech Republic. He told investors in London last year that outperforming rivals in these markets is one of his top strategic priorities in addition to tapping the industry’s growth in Latin America.
Alierta, 67, a former chairman of Spanish tobacco company Tabacalera SA, has been on Telefonica’s board since 1997.
In Spain, KPN has about 400,000 customers under the Simyo brand, which resells minutes using France Telecom SA’s Orange network, said Alfonso Pastor, a marketing director of KPN in Spain. KPN is looking for strategic options for the business.
Telefonica is the largest phone operator in Spain with more than 47 million customers, of which 24.2 million are mobile clients.
Slim’s move “has a clear impact even as the truth is that KPN has almost nothing in Spain,” Telefonica Chief Operating Officer Julio Linares said today at an industry event in Madrid. “We are continuously seeking opportunities to sell small assets. That’s our willingness.”
Following an expansion in Latin America since the 1990s, and its 2010 takeover of Brazilian operator Vivo Participacoes SA, Telefonica is now struggling to cut debt and revive its Spanish business as the sovereign debt crisis prompted consumers to cancel subscriptions or switch to discount services. Alierta in December cut a dividend forecast for the first time in a decade. He announced 6,500 job cuts last year and has halted major acquisitions.
America Movil’s alliance with KPN will pave the way for agreements such as roaming, marketing and joint purchasing, Chief Financial Officer Carlos Garcia-Moreno said on a conference call, calling its investment “long-term” and “strategic.”
“It clearly would be a possibility to continue to look at Europe, but we cannot run before we walk,” Garcia-Moreno said. “We first have to get a better sense of the market, a better sense of the industry, consumers, generally a better understanding of the industry before we can make other moves.”
In addition to assets in the Netherlands, Germany and Spain, KPN also owns the Belgian mobile-phone operator that sells services under the Base brand. KPN said it has started reviewing the future of the unit, which people familiar with the matter estimated may fetch about 1.8 billion euros in a sale.