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KPN Races Against Clock to Prevent Slim Offer Acceptances

KPN Races Against Clock to Prevent Investors Selling to Slim
A pedestrian passes a Royal KPN NV store in The Hague, Netherlands. Photographer: Jock Fistick/Bloomberg

Royal KPN NV Chief Executive Officer Eelco Blok is running out of time to persuade shareholders to ignore a 2.6 billion-euro ($3.3 billion) offer for a stake in the Dutch phone company by Carlos Slim’s America Movil SAB.

KPN’s stock hasn’t closed higher than 8 euros since America Movil bid at that price last month for as much as a 27.7 percent stake. Slim’s company has been buying KPN shares in the market, accumulating an 8.5 percent holding by June 18. Blok and Chief Financial Officer Eric Hageman have been visiting investors to ask them not to tender their shares as the offer undervalues the company, said Maryse Ducheine, a KPN spokeswoman.

To defend itself from the bid, KPN has put its German E-Plus unit under review and is considering the future of its BASE mobile-phone division in Belgium. While America Movil raises the pressure by preparing an investor call tomorrow to lay out its European strategy, KPN must also issue a position statement on the offer this week, before the bid closes on June 27.

KPN’s review is “completely reactionary and completely driven by the approach from Slim,” said Will Draper, an analyst at Espirito Santo in London. “KPN is only doing it because they are being forced to do it -- they could have done it for the last eight years.”

KPN shares have dropped 35 percent since Blok took the helm in April last year. They fell 0.4 percent to 7.91 euros as of 9:21 a.m. in Amsterdam.

Telekom Austria

KPN has hired Goldman Sachs Group Inc. and JPMorgan Chase & Co. to help it evaluate options.

An independent foundation has the responsibility for defending KPN “from influences that may threaten the continuity, independence and identity” of the company, according to KPN’s annual report. If the foundation’s board sees a threat, it may invoke an option to acquire from KPN Class B preference stock, which carries voting rights.

“We do not expect the foundation to exercise call options given that America Movil’s partial bid is not an effective change in control,” Jeffrey Vonk, an analyst at ING, wrote in a note dated June 19.

Slim’s America Movil is establishing footholds in Europe as the continent’s debt crisis hurts the value of phone companies in the region. Last week, America Movil agreed to buy 21 percent in Telekom Austria AG from investor Ronny Pecik.

“It’s shown investors he means business,” Draper said. “There’s a growing belief that Slim is here to stay.”

Voting Rights

Among options being considered, KPN and Spain’s Telefonica SA are evaluating ways to merge their German units, a move that would create the country’s biggest mobile-phone operator by customers, people with knowledge of the matter said this month.

“The problem is that time is playing against management,” said Javier Borrachero, an analyst at Kepler Capital Markets. “The best way to try to convince shareholders that 8 euros is not the best offer is to do something in Germany,” he said. “But it seems too late for that.”

Blok’s attempts to negotiate fell short, said America Movil. His proposal to restrict the voting rights of Slim’s company was immediately rejected.

“Of all the things that we have talked about with KPN, that was the only one we couldn’t accept, to break with the sacred principle of one share one vote,” America Movil Chief Financial Officer Carlos Garcia-Moreno said in a June 15 interview.

Job Cuts

Blok has accelerated job cuts and plans to eliminate as many as 5,000 positions in the Netherlands by the end of 2013, when KPN has a “tough but achievable” goal of cutting costs at headquarters by 30 percent to 40 percent, it said in April.

Phone companies are changing their business models as voice revenue is hurt because customers increasingly communicate with calling software such as Skype or the WhatsApp messaging technology on smartphones.

KPN, the former phone monopoly in the Netherlands and the largest operator in the country, said in January that 2012 will be a transition period after two years of declining net income, as it accelerates Dutch investments to ensure profits. The company predicted lower profit and cash flow this year and said it won’t buy back shares in 2012 after last year’s 1-billion euro program.

“What I don’t understand is why they haven’t decided to welcome America Movil as a strategic shareholder,” Jos Versteeg, an analyst at Theodoor Gilissen said. “There is no one who can explain to me when growth will return at KPN,” said Versteeg. “The problem with Blok is that he hasn’t come up with a good plan since he took the helm.”

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