Royal KPN NV (KPN), the Dutch phone company partly owned by Carlos Slim’s America Movil SAB (AMX:US), fell the most in 11 years in Amsterdam trading after scrapping a dividend to buy frequencies for a faster wireless network.
The stock dropped as much as 16 percent to 3.90 euros for its biggest intraday slump since November 2001, and traded at 4 euros as of 1:47 p.m. local time. The stock has lost 57 percent this year and trades near its lowest level in more than a decade. The number of shares that changed hands was almost four times the three-month average daily volume.
KPN said after market close on Dec. 14 that it won’t pay a final dividend for 2012, following a 12 cent-a-share interim dividend, and that next year’s payout will drop to 3 cents. That compares with a previous plan to pay 35 cents for this year and at least the same amount for 2013. The company bought 1.35 billion euros ($1.8 billion) of wireless frequencies.
Carriers are spending on faster networks as consumers use smartphones such as Apple Inc. (AAPL:US)’s iPhone and handsets based on Google Inc.’s Android system to surf the Web, download music and watch movies. European peers including Telefonica SA (TEF), Deutsche Telekom AG (DTE) and France Telecom SA have also cut or scrapped dividend plans as a result of rising spectrum investments and falling phone revenue amid the region’s debt crisis.
“That’s the cost of staying in business for KPN,” said Ulrich Rathe, an analyst at Jefferies International Ltd. who projects company’s shares will underperform its peers. “The price is higher than we expected, but the dividend cut reflects underlying balance sheets issues as well.”
Fitch Ratings cut KPN’s long-term issuer default rating to BBB-, the lowest investment grade, from BBB. KPN spent almost 1 billion euros more on wireless licenses than Fitch estimated and following the dividend cut the carrier will have “very limited financial flexibility within the constraints of an intensely competitive domestic market,” the ratings company said today.
KPN’s debt is rated BBB by Standard & Poor’s, the second- lowest investment grade, and an equivalent Baa2 by Moody’s Investors Service.
The relative yield on KPN’s 700 million euros of 5.625 percent notes due 2024 increased six basis points to 236 basis points, the most since Nov. 20, according to Bloomberg generic prices.
The stock reached its lowest price in 11 years last month after Sanford C. Bernstein cut its recommendation and Chief Executive Officer Eelco Blok said he may temporarily accept a lower credit rating as he assesses options and need for investments.
After the latest dividend cut, KPN had its rating cut to underweight from neutral by HSBC Holdings Plc. Nomura reduced its price estimate for the stock to 4.70 euros from 5.40 euros, keeping its neutral rating.
The Dutch government raised 3.8 billion euros from the spectrum auction, with Vodafone Group Plc (VOD), Deutsche Telekom’s T- Mobile unit and Tele2 AB (TEL2B) also buying frequencies. Vodafone paid 1.4 billion euros and T-Mobile paid 911 million euros.
Vodafone slipped as much as 3.1 percent in London. Deutsche Telekom fell as much as 1.6 percent on the Frankfurt exchange, while Tele2 lost as much as 2.6 percent in Stockholm.
“It’s a considerable investment, but we look ahead and not back,” Blok said on a conference call Dec. 14, adding that the Dutch sale was more expensive compared to other European markets.
The company, based in The Hague, plans to introduce faster mobile services based on so-called long-term evolution technology in February and achieve countrywide coverage by the second half of 2014. The dividend cut will save the company 800 million euros, Blok said.
KPN, who in October reported a 32 percent drop in third- quarter profit, has accelerated job cuts and plans to eliminate as many as 5,000 positions in the Netherlands by the end of 2013. The carrier already had cut its 2012 dividend in July to 35 cents a share from previously 90 cents a share.
The former phone monopoly reiterated its 2012 forecast for earnings before interest, taxes, depreciation and amortization, cash flow and investments.
KPN also said Dec. 14 it sold its Spanish Simyo operator to France Telecom to raise cash. No financial details of the deal were given.
Earlier this year, KPN tried unsuccessfully to sell Belgian mobile-phone unit Base and ended discussions on a potential merger involving its German E-Plus wireless unit and Telefonica’s business in Germany.
Blok said in October that KPN is in talks with investor America Movil to shape cooperation efforts after Carlos Slim’s wireless carrier obtained more than a quarter of the Dutch telecom operator’s shares in an unsolicited bid.
Slim, the world’s richest man, has expanded America Movil into Europe to take advantage of phone company valuations that have fallen during the euro-region crisis. The Mexican company said it bought 28 percent of KPN in June, the same month it purchased a stake in Telekom Austria AG. (TKA)
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