Telefonica trumps Slim in Dutch telco bid

Telefonica has raised its bid for KPN’s German arm by 6 percent to 8.55 billion euros ($11.5 billion), winning over top KPN investor America Movil and setting the stage for consolidation in Europe’s largest mobile market.

Mexican billionaire Carlos Slim’s America Movil, which owns almost 30 percent of KPN, said it backed Telefonica’s new offer for KPN’s E-Plus unit. Shares of America Movil rose 1 percent in morning trade.

Earlier this month, America Movil launched a bid for the shares of KPN it did not already own, a challenge to the Spanish telecoms group’s original deal to buy the E-Plus unit.

America Movil said on Monday it would press ahead with its plan to buy the rest of the Dutch firm. But its bid faces challenges from antitrust regulators, unions and a foundation with power to block a takeover of KPN.

Analysts also said some KPN shareholders, including hedge funds who have bought shares recently, could pressure America Movil to raise its offer.

The agreement moves Telefonica closer to its goal of stepping up its challenge in Germany to market leaders Deutsche Telekom and Vodafone.

It also offers a better deal for America Movil, Telefonica’s arch-rival in Latin America which on paper has racked up huge losses on its European investments since buying minority stakes in KPN and Telekom Austria.

The new offer hands KPN 5 billion euros in cash and also increases its stake in the future combined German business to 20.5 percent from 17.6 percent under the terms of the previous offer.

Investors are cautious about America Movil’s European expansion efforts. Its shares remain down more than 20 percent since it announced it would offer 7.2 billion euros for KPN.

Stefan Astheimer, vice president of strategy at investment manager Howe & Rusling in Rochester, New York, said Monday’s news was mixed for the Mexican company.

“On the one hand, they are losing the opportunity to gain direct entry to the German market which was an important part of their strategy,” said Astheimer, whose firm has a small equity and debt position in America Movil.

“On the other hand, the deal will inject cash into KPN and allow America Movil to focus on the Dutch and Belgian markets, while giving them a larger stake in Telefonica Germany, which should appreciate in value,” he added.

“I think it was prudent of America Movil to allow Telefonica to acquire E-Plus rather than getting bogged down in a potentially expensive or ugly conflict which would not reflect well on their efforts to allay the concerns of the KPN Foundation and others,” Astheimer added.

BPI analyst Pedro Oliveira said the deal showed Carlos Slim and Telefonica boss Cesar Alierta could overcome their differences. “Their business sense is becoming stronger than the rivalry between Telefonica and America Movil,” he said.

Telefonica still needs support from antitrust regulators for a deal that will reduce the number of players from four to three in Germany, a market with 112 million subscribers.

Many European telecoms firms are looking to consolidate to cope with saturated markets, recession-hit consumers, tough regulation and expensive network upgrades.

However, regulators are wary that reduced competition could lead to higher prices for consumers and mobile profit margins in Germany are already much higher than in Britain and France.

“Politicians seem to be more favorable to protecting telecoms companies … but this is an operation that will have a lot of scrutiny from the regulators,” BPI’s Oliveira said.

Dutch charm offensive

An independent foundation with power to block a takeover of KPN has expressed concern about America Movil’s bid to pay 2.4 euros for each share it does not own.

“There will be a tussle for control of KPN – the question is will shareholders allow America Movil to take control of KPN via the tender offer at such a low price?” said Bernstein Research analyst Robin Bienenstock.

America Movil executives will meet the Dutch Minister for Economic Affairs, along with KPN union representatives on Wednesday to discuss its plans for the Dutch telecoms group, sources told Reuters.

“The Minister wants to be informed given the importance of KPN for the Dutch economy,” said one of the sources.

KPN’s largest union Abvakabo FNV also has concerns.

“What are you investing in the cooperation with KPN and what will that mean for jobs in the Netherlands? That’s what I want to get an answer to,” said a union spokesman.

America Movil bought into KPN in June 2012 at roughly 8 euros per share. It paid a much lower price in February to raise its stake.

KPN’s shares closed up 3 percent at 2.33 euros, while Telefonica’s rose slightly to 10.78 euros, with shares in its German unit up 2.88 percent at 5.22 euros.


Telefonica has shed 10 billion euros of debt since June 2012 and plans more asset disposals, so it can afford the deal.

“The increased amount is not big enough to put pressure on the rating,” said Carlos Winzer, analyst at Moody’s, which rates Telefonica at Baa2, two notches above junk territory.

Under the revised terms, Telefonica will sign an option to buy back 2.9 percent of its German subsidiary after a year at a price of 510 million euros. The Spanish group sees the German deal generating up to 5.5 billion euros in cost savings.

Last month, experts told Reuters that Telefonica was likely to try to win over antitrust regulators by offering to give up some spectrum and by giving greater access to its networks to new “virtual” operators.

To make its bid more attractive in the Netherlands, America Movil said on Monday it would maintain KPN’s headquarters in that country and keep its stock market listing in Amsterdam, as well as its commercial brands.

Walter Samuels, a spokesman for the KPN Foundation, declined to comment on Monday’s announcements, other than saying: “We’re still following developments.”

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Telefonica trumps Slim in Dutch telco bid