Carlos Slim, whose net worth has shrunk by more than $8 billion this year amid a regulatory crackdown in Mexico, is seeking better returns in Europe.
Slim’s wireless carrier, America Movil SAB, announced plans yesterday to buy the rest of Royal KPN NV, a Dutch phone company in which he already owns a 30 percent stake. The 7.2 billion-euro ($9.6 billion) transaction would mean doubling down on a stock that has lost 43 percent of its value over the past year. Slim also owns a stake in the slumping Telekom Austria AG.
The move demonstrates that Slim wants to have staying power in Europe, helping insulate his empire from regulatory pressure and slowing growth in its home country of Mexico. It also may undermine Telefonica SA, his biggest rival in Europe, which is seeking to buy KPN’s German unit E-Plus in a separate deal.
“Europe might be the next area of his exploration,” said Walt Piecyk, an analyst at BTIG LLC in New York. “He already has stakes in KPN and Telekom Austria, so maybe he’s past his learning stage and ready to move onto a more acquisitive stage.”
America Movil shares have lost 11 percent this year, hurt by efforts to rein in the company’s dominance in Mexico. New legislation creates an agency with the power to regulate competition in the telecommunications industry and force companies to divest assets. America Movil has about 70 percent of mobile-phone subscribers in the country and 80 percent of landlines.
The stock slide has affected the personal fortune of Slim, 73, who lost the title of world’s richest person in May. His net worth has fallen to $67.1 billion, according to the Bloomberg Billionaires ranking. Microsoft Corp. co-founder Bill Gates retook the top spot with a fortune of $73 billion.
The European opportunity is a mixed blessing for Slim, said James Moorman, an S&P Capital IQ analyst in New York. Acquiring the entirety of KPN would give him more influence over the struggling company and potentially extract a better offer from Telefonica in the E-Plus deal, he said.
Still, it means shifting away from a region that made Slim rich and threatens to increase the company’s debt load. In addition to its Mexican business, America Movil has operations in Brazil, Colombia and the rest of Latin America.
America Movil shares fell 5.6 percent to 13.3 pesos yesterday in the wake of the announcement.
“I don’t think this is the best use of their cash, given KPN hasn’t done well and most of their network’s in Latin America,” Moorman said. “It’s moving away from where they’ve been successful.”
America Movil will bid 2.40 euros a share in cash for the 70 percent in KPN that it doesn’t already own. That’s 20 percent more than its close on Aug. 8. The offer, to be made official next month, is subject to America Movil winning a stake of more than 50 percent.
The sale requires approval from shareholders of KPN, which said yesterday it plans to convene a meeting in the coming weeks. The move followed KPN’s agreement to sell E-Plus, its largest business, to Spain’s Telefonica. America Movil said yesterday it hasn’t decided if it will support the 8.1 billion-euro E-Plus transaction.
“This move, and the fact that Slim hasn’t made a decision over Telefonica’s bid for E-Plus, suggests that the billionaire will seek a sweetened offer from the Spanish company,” said Andres Bolumburu, an analyst at Banco de Sabadell.
Under the July 23 agreement with Telefonica, KPN would get 5 billion euros in cash and a 17.6 percent in the entity created from the combination of E-Plus and Telefonica Deutschland Holding AG, the Spanish carrier’s unit operating under the O2 brand. The enlarged German operator would surpass Deutsche Telekom AG and Vodafone Group Plc in customer numbers. The transaction requires antitrust approval because it would cut the number of network operators in Germany to three from four.
Marisa Navas, a spokeswoman for Madrid-based Telefonica, said yesterday that Telefonica Deutschland’s offer for E-Plus is final. Stefan Simons, a spokesman at KPN, said the company is studying America Movil’s proposed bid.
Slim is pouring more money into an investment he has so far made losses on. America Movil spent about $4 billion increasing its stake in KPN last year, after bidding 8 euros a share. The shares closed yesterday at 2.32 euros.
America Movil said it had informed KPN representatives of the latest offer and is seeking to meet with the board to discuss cooperation. It will make the official bid in September, once an offer memorandum has been approved by Dutch financial-markets authorities.
To buy KPN outright, America Movil would need to cancel a share buyback and obtain $4 billion of debt financing, Sanford C. Bernstein & Co. analysts said in a note last month.
America Movil may also need to deal with another hurdle. 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 filings. 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.
Peter Wakkie, a member of the foundation’s board, said in an e-mail that he didn’t want to comment on the latest developments.
Slim’s company said the deal is aimed at intensifying the synergies with KPN, helping support the company’s plans in “a rapidly changing environment in Europe.”