Deutsche Telekom Said to Be Averse to Making Large Acquisition

Updated on

Deutsche Telekom AG is averse to making a large acquisition and Dutch carrier Royal KPN NV never came up as a takeover target during recent discussions at board meetings, according to a person with knowledge of the matter.

Deutsche Telekom isn’t interested in a deal that would jeopardize its debt ratings, said the person, who asked not to be identified because the deliberations are confidential. Deutsche Telekom explored a bid for KPN in the late fall last year, Reuters reported today, citing sources it didn’t identify. Opinion is split whether Deutsche Telekom may revive its interest, the newswire said.

KPN shares pared gains earlier gains, and closed 3.8 percent higher at 2.58 euros in Amsterdam, valuing the carrier at 11 billion euros ($12.7 billion). Billionaire Carlos Slim’s America Movil SAB is the biggest investor with a stake of about 21.4 percent as of end of September.

Andreas Fuchs, a spokesman for Bonn-based Deutsche Telekom, declined to comment, as did KPN spokesman Stefan Simons.

KPN won’t fit Deutsche Telekom’s strategy of making acquisitions in growing markets such as eastern Europe, according to Bayerische Landesbank analyst Amir Darabi.

Politically Sensitive

An acquisition of KPN isn’t only politically sensitive, but would probably meet with regulatory opposition and a call for the sale of KPN’s 20.5 percent stake in Telefonica Deutschland Holding AG, which competes with Deutsche Telekom in Germany, Darabi said.

In the Netherlands, Deutsche Telekom’s T-Mobile division competes with KPN.

Deutsche Telekom started exclusive talks last month to sell its 50 percent stake in U.K. wireless provider EE to BT Group Plc, a deal that would be paid mostly in BT shares. The cash proceeds won’t be enough to cover the potential costs of an acquisition of KPN. Orange SA owns the remaining half of EE.

The German company’s debt is rated Baa1 at Moody’s Investors Service and BBB+ at Fitch Ratings and Standard & Poors. Those are the third-lowest investment grade. The company is prepared to accept a ranking as low as BBB at Fitch and S&P, it said in its most recent earnings report.

America Movil, which made an unsuccessful takeover bid for KPN in 2013, has been gradually cutting its holding. Chief Executive Officer Daniel Hajj said in October that the Mexico City-based carrier wasn’t in a hurry to make a decision about what it would do with the remaining shares.

“The reason I think Deutsche Telekom would ever want to take over KPN is when the European market really starts consolidating, to have scale,” said Marc Hesselink, an analyst at ABN Amro in Amsterdam. “But short term this doesn’t appear to be the most logical step to me.”