America Movil SAB, the mobile-phone carrier controlled by billionaire Carlos Slim, agreed to support Royal KPN NV’s 4 billion-euro ($5.4 billion) capital-raising plan in return for nominating two people to the Dutch carrier’s supervisory board.
America Movil will take part in a 3 billion-euro KPN share sale, while declining to participate in a 1 billion-euro sale of so-called hybrid instruments, the Mexico City-based company said today. KPN dropped to an 11-year low in Amsterdam trading on disappointment that Slim didn’t demand more changes and also agreed not to raise his stake beyond 30 percent.
“What I miss is that there’s no change in management,” Corne Aben, who helps manage about 1 billion euros at Amsterdam-based Optimix Vermogensbeheer including KPN shares, said in a phone interview. “I had hoped there would have been winds of change within KPN.”
The compromise shows Slim is willing to put more money into an investment that has lost more than half of its value since America Movil bid 8 euros a share for KPN stock. KPN said today its agreement with America Movil will preclude Slim’s company from increasing its stake to more than 30 percent, from about 28 percent now.
America Movil had also considered asking for Chief Executive Officer Eelco Blok’s ouster as a condition for its support for the share sale, people familiar with the matter said last week. Stefan Simons, a KPN spokesman, declined to comment beyond the company’s press release.
KPN dropped 9.7 percent to 2.92 euros at the close in Amsterdam. The stock fell 16 percent on Feb. 5, the day the company said it plans to sell new shares to current investors.
America Movil fell 2.3 percent to 14.13 pesos in Mexico City.
It made sense for Slim’s company to support the rights offering to put KPN on more solid footing, putting off until later deliberations on whether to attempt a full takeover of the Dutch carrier, said Richard Dineen, an analyst at HSBC Holdings Plc in New York.
“It’s important not to panic about KPN, to be very rational,” Dineen said yesterday in a telephone interview. “They can pay a small amount of money now to keep their options open. KPN gets to live, and you get to make a decision another day.” He has the equivalent of a buy rating on America Movil shares.
Following today’s announcement, a shareholder meeting scheduled for March 19 has been canceled and the agenda will be discussed at the annual meeting on April 10, KPN said today. The company will have eight board members after the meeting, including America Movil’s two representatives, it said.
KPN is among European phone companies looking at asset sales and raising capital to cope with the rising costs of maintaining high-speed networks for devices like Apple Inc.’s iPhone. Under Blok, who took over in 2011, KPN’s shares have plunged amid stagnant revenue and abortive attempts to sell its Belgian unit and merge its German operations with those of Telefonica SA.
America Movil plans to spend a little less than 900 million euros for the KPN shares, according to a press official. The company said it intends to keep its stake in KPN at its current level, which is about 28 percent. The carrier spent a total of 3.07 billion euros last year on KPN shares, in a bet on the Dutch operator’s long-term growth prospects.
“The support of our largest shareholder is a major step towards the successful execution of our capital raise,” KPN said in its statement. “KPN will have the benefit of a strong relationship with a global leader in the telecom sector going forward.”
The carrier said it reached a standby underwriting agreement with Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. for the 3 billion-euro rights issue. Along with the hybrid capital instruments, the sale proceeds will go toward investments and cutting debt, KPN said.
KPN is in the process of appointing more banks to split the underwriting risk of 2.1 billion euros among themselves, said a person involved in the transaction, declining to be named as the details aren’t public. American Movil’s participation in the rights sale will amount to about 890 million euros, the person said.
The rights issue will happen after the April 10 shareholder meeting and the hybrid sale before that, the person said. KPN is scheduled to report first-quarter results April 23.
The former Dutch phone monopoly spent 1.35 billion euros acquiring wireless spectrum in the Netherlands in December. It faces a new challenger there from Sweden’s Tele2 AB, which will offer consumers mobile services after buying its own spectrum in the same auction.
That makes the Netherlands one of the few European countries in which the number of mobile operators is growing rather than shrinking, increasing competition and potentially driving down prices.
Moody’s Investors Service rates KPN’s debt Baa2, the second-lowest investment grade, while Standard & Poor’s ranks the debt one step lower, at BBB-.
Slim’s decision to invest in KPN was the first major foray into Europe for Mexico City-based America Movil, which dominates Mexico’s wireless market and operates throughout Latin America, typically in close competition with Spain’s Telefonica. The group also built a 23 percent stake in Telekom Austria AG last year, prompting speculation Slim could eventually attempt to merge his European assets.
At the time, Slim’s son and America Movil co-Chairman Carlos Slim Domit described the KPN deal as an attempt to find opportunity in “hard times” for Europe’s economy ahead of an eventual recovery in the region.