Billionaires Snubbed in Netherlands Show Phone Stock Gain
John Malone and Carlos Slim’s plans to expand their empires on the cheap in Europe’s beleaguered telecommunications market have been thwarted so far as companies in the region begin commanding higher prices.
Both billionaires suffered recent setbacks in the Netherlands trying to turn leading stakes into full ownership. Cable company Ziggo NV (ZIGGO) rejected Malone’s offer and Slim’s America Movil SAB withdrew a 7.2 billion-euro ($9.8 billion) bid for Royal KPN NV after the targets said they wanted more.
Europe’s phone and cable companies have struggled with high unemployment and strict regulatory oversight that pummeled their stocks. This weakness made them attractive to investors at home and abroad, particularly as the continent revives. Europe’s economy will shrink less this year than last and gross domestic product will gain in 2014, according to economists’ forecasts compiled by Bloomberg.
“With the region showing signs of recovery, the price investors such as Slim and Malone need to pay is going up,” said Norbert Janisch, a fund manager at Vienna-based Raiffeisen Capital, which manages about 30 billion euros ($41 billion), including shares in Ziggo.
European telecom services’ average price-to-earnings ratio, a measure of how expensive a stock is, were generally lower than their U.S. counterparts from February through July, a comparison of Bloomberg indexes for the European and American industries shows. The positions reversed in August, when investors began valuing Europe’s phone companies more highly.
AT&T Inc. Chief Executive Officer Randall Stephenson has expressed interest in Europe and considered a bid for Vodafone Group Plc, people familiar with the U.S. company’s plans have said. Egyptian billionaire Naguib Sawiris briefly revived talks with Telecom Italia SpA after his offer for a stake was rebuffed last year, people familiar with the matter said last month.
That interest has driven valuations. The Bloomberg Europe 500 Telecom Services Index is up 24 percent since July 1, more than double the 10 percent increase by providers worldwide, according to the Bloomberg World Telecommunications Index.
Slim is the world’s second-richest man with $69.7 billion, according to the Bloomberg Billionaires Index. He’s lost $5.5 billion so far this year, or 7.3 percent. Malone’s net worth is about $6.9 billion, and he’s gained $1.3 billion, or 24 percent, so far this year.
The billionaires honed in on the Dutch assets as the country is in transition, with more fixed-line operators and wireless-service providers offering the same services to customers, Sanford C. Bernstein analyst Robin Bienenstock said in a note yesterday.
Carrier KPN is well-positioned after rolling out a high-capacity fiber optic network, which can offer high-speed Internet access and enable mobile traffic to offload onto the physical network. Ziggo, a TV and Internet provider, plans to sell wireless service as well this year, bringing it in competition with Sweden’s Tele2 AB (TEL2B), Vodafone and Deutsche Telekom AG, as well as KPN for Dutch mobile users.
Telecom deals have dominated dealmaking this year, with a value of about $236 billion. That’s almost twice the next-largest industry, according to data compiled by Bloomberg.
Buyers have spent about $70 billion on 130 acquisitions in Europe, according to the data. Almost all of them have been cross-border, as buyers look outside of their home markets for investments. Malone’s Liberty Global Plc (LBTYA) has been the most acquisitive with four deals worth $22.9 billion, the data shows.
Slim bought into KPN last year for 8 euros a share, building up an almost 30 percent stake. Since then, the stock has lost about 70 percent of its value, even accounting for a 45 percent rally in the price since July 22, when KPN and Telefonica SA confirmed talks on joining their German assets.
America Movil offered to buy the remaining shares of KPN for 2.30 euros each on Aug. 7, two days before making a bid of 2.40 euros, according to the prospectus published today by the Dutch Financial Markets Authority. KPN spokesman Stefan Simons declined to comment on it.
When Mexico City-based America Movil said on Oct. 16 it was dropping its pursuit, KPN shares had reached 2.42 euros. They fell back below the 2.40-euro offer level yesterday, and traded at 2.24 euros at 3:19 p.m. in Amsterdam today.
“There is of course a possibility that we’ll get back at the table,” Chief Executive Officer Eelco Blok said yesterday, declining to comment on how much KPN wanted from America Movil. “If a party makes an interesting offer, we’ll consider it.”
Malone’s Liberty Global Plc has built Europe’s largest cable operator. It’s got companies in 12 European countries, including Germany and the Netherlands, and bought the U.K.’s Virgin Media Inc. for $16 billion in cash and shares this year. While he lost out to Vodafone in Germany when the Newbury, England-based mobile carrier outbid for Kabel Deutschland Holding AG, his March investment in Ziggo has been lucrative.
He bought 12.7 percent of Ziggo, a year after it debuted on the Amsterdam exchange, from Barclays Plc a week after the bank failed to find enough buyers for its stake. Malone paid 25 euros a share -- they rose 28 percent between his March arrival and news of the bid’s rejection.
Ziggo rose 2.1 percent to 31.04 euros in Amsterdam after reporting a third-quarter net income of 86.5 million euros, beating the average analyst estimate of 78.4 million euros.
Liberty Global said in an Oct. 16 filing that it made a preliminary proposal to Ziggo in August. Ziggo called the offer “inadequate,” without disclosing the terms, and said there was no guarantee Liberty Global would revise its offer.
Not all of the billionaires who bid on Europe’s phone companies are blocked. Asia’s richest man, Li Ka-Shing, agreed to buy Telefonica’s Irish unit for as much as 850 million euros in June after being rebuffed for Eircom Group, Ireland’s former phone monopoly, when an examiner overseeing the company’s debt restructuring rejected his 2 billion-euro offer.
Now Slim and Malone will have to decide what to do next. Malone said in July that he may look in southern Europe once valuations there hit bottom.
Slim also owns a stake in Telekom Austria AG (TKA), which sells Internet and phone service across Eastern Europe. The shares jumped as much as 6.3 percent yesterday as investors bet the Vienna-based company may become Slim’s consolation prize.
America Movil has been “a good partner,” Telekom Austria CEO Hannes Ametsreiter said today in an investor conference in Vienna. He said it is unlikely that America Movil will “turn hostile,” adding he doesn’t know what may happen next.
“The telco sector is a super-interesting place to look these days with so much activity happening,” said Lex Van Dam, a fund manager who oversees $500 million at Hampstead Capital LLP in London. “Consolidation is a must so it’s just a matter of time before we see the next deal.”