Royal KPN NV (KPN), the Dutch phone company that rejected an unsolicited 2.6 billion-euro ($3.4 billion) offer for a stake by Carlos Slim’s America Movil SAB (AMXL), has a defense in the event of a hostile takeover bid.
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 annual report. 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, not exceeding the total issue of ordinary shares, minus one share.
The arrangement may act as a safeguard for KPN’s ownership structure after the former state-controlled operator said May 8 that America Movil’s 8-euro per share cash offer is too low and it hired Goldman Sachs Group Inc. (GS:US) and JP Morgan Chase & Co. (JPM:US) to explore strategic options. The KPN bid marks the biggest investment by Slim, the world’s richest man, outside his Latin American phone empire.
“If they would do that, it would be to force a better price,” said Corne van Zeijl, a Den Bosch, Netherlands-based fund manager at SNS Asset Management, referring to the defense mechanism. Van Zeijl, who oversees about 1 billion euros including KPN shares, said he hadn’t contacted KPN’s management on America Movil’s offer.
Stefan Simons, a KPN spokesman in The Hague, declined to comment, as did a representative for America Movil. 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.
KPN shares rose 0.4 percent to 7.75 euros at 5:22 p.m. in Amsterdam. America Movil was unchanged at 17.2 pesos in Mexico City, where the company is based.
KPN jumped 17 percent on May 8 as America Movil offered to acquire as much as a 28 percent holding. The company already owns 4.8 percent.
Morgan Stanley accumulated a 10 percent stake in KPN, according to a filing dated May 4 disclosed on the AFM regulator’s website today. The transaction didn’t take place on behalf of America Movil, Claire Verhagen, an outside spokeswoman for the company in the Netherlands, said by phone.
If its offer is successful, America Movil has no immediate plans to increase its holding, and would probably not evaluate buying more shares for at least a year, according to a person familiar with its plans. KPN could eventually be used as a vehicle for further acquisitions in Europe, the person said.
While telecommunications companies in Europe have to contend with line losses, changing technology and regulatory scrutiny, Slim is accustomed to such challenges, said Richard Dineen, an analyst at HSBC Holdings Plc (HSBA) in New York.
“He knows what these businesses are about,” Dineen said in a phone interview. “He can see the longer-term horizon, see the value and be comfortable and patient and see things improve. There are fundamentally decent businesses that are undervalued.”
Both KPN and America Movil said they hadn’t held talks prior to the offer. America Movil has no plan to fully take over KPN, which also owns assets in Germany, Belgium and Spain, Chief Financial Officer Carlos Garcia-Moreno said May 8.
In the Netherlands, holders of a 30 percent stake in a public company are obliged to make an bid for all outstanding shares. By offering to increase its stake to as much as 28 percent, America Movil is leaving little room for a competitor to present a better proposal without triggering a full takeover attempt, Dineen said. He has a neutral rating on America Movil.
The bid paves the way for agreements with KPN over roaming, marketing and joint purchasing, Garcia-Moreno said on a conference call on May 8.
Slim is taking advantage of Europe’s debt crisis to look for bargains in the region. The KPN offer follows failed attempts in the past decade to enter Spain and Italy, and America Movil also considered purchases in the past 18 months in Poland and Serbia.
In the event the KPN foundation decides to trigger the defense mechanism, the preference shares would be canceled “relatively shortly after issuance,” KPN said in its 2011 report, adding that the likelihood of the option being exercised is “remote.”
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