America Movil to Back KPN German Sale After Bid Sweetened

Telefonica SA, the carrier that’s trying to acquire Royal KPN NV’s German mobile-phone business, won the backing of the Dutch company’s biggest investor, Carlos Slim, after agreeing to sweeten its bid.

Slim’s America Movil SAB has given an “irrevocable commitment” to vote in favor of the sale of KPN’s E-Plus unit to Telefonica Deutschland Holding AG, KPN said today. The new terms, including KPN getting a bigger stake in the German entity than originally agreed, raise the transaction’s value to 8.55 billion euros ($11.4 billion) from 8.1 billion euros.

The support of Slim, with a 30 percent stake in KPN, boosts the chance the deal will be completed. Slim clarifying his position on the sale may also help avoid potential opposition for his separate 7.2 billion-euro bid for KPN from an independent foundation that has the power to defend the carrier from a takeover, said Emmanuel Carlier, an ING Groep NV analyst.

“The foundation has said they want America Movil to be clearer on their intentions on E-Plus and now they’ve done so,” Brussels-based Carlier said. “It no longer makes sense for the foundation to act.”

The foundation said this month it was concerned that America Movil isn’t being clear about its offer and should provide clarity on its position over the sale of E-Plus. The foundation declined to comment further today, according to Walter Samuels, a spokesman for the organization.

Telefonica Risks

America Movil is offering 2.40 euros a share to boost its stake in KPN to more than 50 percent. KPN, based in the Hague, rose 3 percent to close at 2.33 euros in Amsterdam, valuing the company at 9.9 billion euros. Telefonica added 0.2 percent in Madrid, while its German unit gained 2.9 percent in Frankfurt. America Movil was little changed at 13.01 pesos in Mexico City.

For Telefonica, the new terms mean the company risks overpaying as it seeks to become the biggest carrier in Germany by wireless subscribers, said Javier Mielgo, an analyst at Mirabaud Finanzas in Madrid.

“Telefonica has finally ceded,” Mielgo said. “It is a way to secure the deal by putting about 500 million euros on the table. Telefonica isn’t overpaying too much as it has in past acquisitions such as Vivo in Brazil, but the new terms are not as attractive for Telefonica shareholders anymore.”

Sweetened Terms

KPN will get 20.5 percent in the entity combined from its E-Plus unit and Telefonica Deutschland, up from 17.6 percent initially agreed. Telefonica gets an option to acquire a 2.9 percent stake in the German business from KPN for 510 million euros after a year. KPN will also receive 5 billion euros of cash, as originally agreed.

The improvement in the deal’s terms was “pretty limited,” said ING’s Carlier.

KPN and Telefonica didn’t secure America Movil’s backing before the German deal was announced July 23. Just weeks after, Slim moved on KPN while seeking leverage to get a higher price for E-Plus or to block the deal, two people familiar with the billionaire’s plans said this month.

America Movil confirmed in a statement it will support the German sale under the new terms and also said it is committed to its offer for KPN. Slim wants to have staying power in Europe, helping insulate his empire from regulatory pressure and slowing growth in its home country of Mexico.

Daniel Hajj, America Movil’s chief executive officer and Slim’s son-in-law, is scheduled to meet with Dutch Economy Minister Henk Kamp on Aug. 28 to discuss the proposed bid for KPN, according to a person familiar with the matter, asking not to be identified because the meeting is private.

An America Movil press official declined to comment on specific meeting plans. “AMX is very interested in talking to officials and communicating its intentions to make long-term investments at the local level,” the company said in an e-mail.

Antitrust Approval

America Movil said it plans to keep KPN’s headquarters in The Hague. It will also keep KPN’s stock listed in Amsterdam, unless it obtains 95 percent or more of the company. America Movil also said it would keep the KPN brand and investigate expansion investments.

The bid for KPN means 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. Slim also owns a stake in Telekom Austria AG.

KPN’s E-Plus and Telefonica Deutschland, which sells services under the O2 brand, together would have a customer base of 43.8 million as of June, surpassing Vodafone Group Plc’s 32.2 million and Deutsche Telekom AG’s 37.5 million, according to data compiled by Bloomberg Industries. Counting wireless-service revenue, Telefonica Deutschland and E-Plus together remained smaller than Deutsche Telekom’s T-Mobile and Vodafone.

Shareholder Meeting

The German deal, which the companies plan to complete in mid-2014 pending antitrust approval, will result in cost savings and revenue synergies of 5 billion euros to 5.5 billion euros, the carriers have said.

Shareholders are set to vote on the German sale at an Oct. 2 meeting in The Hague, KPN said last week.

“From here only the regulatory hurdles -- that we believe are surmountable -- remain,” Robin Bienenstock, a Sanford C. Bernstein analyst, said in a note. The outcome is “a strong positive sign for the entire European telecom sector.”

Morgan Stanley, Citigroup Inc. and HSBC Holdings Plc advised Telefonica, while KPN was assisted by Goldman Sachs Group Inc. and JPMorgan Chase & Co. Telefonica Deutschland was advised by Bank of America Merrill Lynch and UBS AG. Deutsche Bank AG is advising America Movil on its bid for KPN.

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