Slim Boosts Odds of Winning KPN After Failed German Talks

KPN Races Against Clock to Prevent Investors Selling to Slim
Eelco Blok, chief executive officer of Royal KPN NV. Source: KPN via Bloomberg

America Movil SAB’s 2.6 billion-euro ($3.3 billion) bid to increase its stake in Royal KPN NV received a boost after the Dutch phone operator abandoned talks over a combination of its German business with a rival.

KPN ended discussions on potential market consolidation in Germany because of “adverse conditions” in the financial markets, The Hague, Netherlands-based company said yesterday, without naming any other company. KPN and Telefonica SA were evaluating options including a merger of KPN’s E-Plus unit with Telefonica’s O2, the two smaller of Germany’s four wireless operators, people familiar the matter said this month.

The failed talks leave KPN Chief Executive Officer Eelco Blok with few options to counter America Movil’s unsolicited 8 euro-a-share offer expiring June 27. KPN’s stock hasn’t closed higher than that price since Carlos Slim’s company bid last month for as much as a 27.7 percent stake. Blok and Chief Financial Officer Eric Hageman have been visiting KPN investors in the past weeks to ask them not to tender their shares.

“It’s an absolute mess,” said Will Draper, an analyst at Espirito Santo in London. “What’s going to happen to KPN’s share price is that it’s going to get slammed and make that 8 euros look even more attractive.”

Independent Foundation

KPN shares fell as much as 4.9 percent to 7.51 euros and traded 3.7 percent lower at 7.61 euros at 9:05 a.m. in Amsterdam. The Dutch company reiterated that America Movil’s offer is too low, and said it plans to publish a position statement today. America Movil will hold an investor call to detail its own strategy after European markets close today.

As a last resort, KPN can turn to its independent foundation, which has the responsibility for defending the company from “influences that may threaten the continuity, independence and identity” of the company by issuing shares that carry voting rights.

America Movil rose 0.3 percent to 17.51 pesos in Mexico City, where the company is based. Slim’s company has been buying KPN shares in the market, accumulating an 8.7 percent holding as of yesterday.

Officials at America Movil and Madrid-based Telefonica declined to comment.

“Today, KPN has an even stronger belief that there is significant value embedded in the German market, and is convinced that other parties share this view,” KPN said in a statement yesterday.

German Combination

The options Telefonica and KPN had explored included a sale of a stake in a joint German entity in an initial public offering, a person familiar with the matter said this month.

A combination of O2 and E-Plus would cut the number of network operators in Germany to three and create the country’s largest wireless-service provider by customers. KPN has estimated 4 billion euros in synergies from a deal in Germany.

“With no short-term solution in Germany, the case for value uplift at KPN will be difficult to prove, and the likelihood of America Movil’s offer to go through has increased substantially,” Nomura analyst led by Frederic Boulan wrote in a note, adding that KPN shares, before yesterday’s announcement, had priced in half of the synergies.

O2 and E-Plus would have a combined mobile-phone customer base of 41.7 million, which would leapfrog Vodafone Group Plc’s 36.5 million and Deutsche Telekom AG’s 35.1 million. Based on wireless-service revenue in the first three months of this year, a combined E-Plus and O2 remains smaller, with about 1.53 billion euros, compared with Vodafone’s 1.7 billion euros and 1.66 billion euros for T-Mobile.

Telekom Austria

“The idea that a deal can be tried in six months or 12 months or in three years will remain, and certainly E-Plus is interested in that and Telefonica will be too,” said Mathieu Robilliard, an analyst at BNP Paribas in Paris. “The question is, does America Movil want to see a merger?”

In an interview last week, America Movil CFO Carlos Garcia- Moreno said that KPN benefits from retaining mobile-phone assets in Germany and Belgium.

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

“What else can they do?” Jeffrey Vonk, an analyst at ING, said of KPN in an interview. “In theory the foundation could take on all of the shares. Basically that’s the only option left.”

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