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Carlos Slim, the world’s richest man, may seek the ouster of Royal KPN NV’s chief executive officer and other changes before agreeing to support the Dutch phone company’s planned 4 billion-euro ($5.4 billion) share sale, according to people familiar with the matter.
America Movil SAB, the Slim-backed company with a 28 percent stake in The Hague-based KPN, may impose conditions including a seat on KPN’s board, the replacement of Eelco Blok with a new CEO, or other management changes, the people said, asking not to be identified discussing a private matter. America Movil will almost certainly not participate in the rights offer unless at least some conditions are met, though the specifics of its requests haven’t been decided, said the people.
KPN is among European phone companies looking at asset sales and raising capital to cope with the rising costs of maintaining high-speed networks for devices like Apple Inc. (AAPL)’s iPhone. Under Blok, who took over in 2011, KPN’s shares have plunged more than 70 percent amid stagnant revenue and abortive attempts to sell its Belgian unit and merge its German operations with those of Telefonica SA.
America Movil “has no incentive to subscribe to a rights issue, let alone buy KPN,” Robin Bienenstock, an analyst at Sanford C. Bernstein, wrote in a note to clients today. “We are deeply pessimistic about potential long-term value creation at KPN and would argue that there is a real possibility that KPN ends up in the hands of creditors if there is no rights issue.”
Stefan Simons, a KPN spokesman, declined to comment. Slim declined to comment today at an event in Texcoco, Mexico. America Movil will announce a decision on the KPN offer early next week, Chief Financial Officer Carlos Garcia-Moreno said today on a conference call.
KPN shares dropped from an intraday high of 3.42 euros after Bloomberg News reported the discussions. The stock was up 4.5 percent at 3.27 euros at the close of trading in Amsterdam.
KPN shares fell as much as 25 percent on Feb. 5, the day the company said it plans to sell stock to current investors. Blok said at the time that Slim’s position was unclear. America Movil slid 10 percent at the close in Mexico City after its earnings missed analysts’ estimates.
The Mexican company bid 8 euros a share for its KPN stake last year, citing the Dutch operator’s long-term growth prospects among its motivations for making the investment. KPN shareholders are set to vote on the share sale proposal at a meeting on March 19.
“We will question the need of the enormous rights issue,” said Jasper Jansen, an economist at the investor lobby group VEB, which represents holders of about 1 million KPN shares. “Shareholders are bleeding with the dilution that is taking place. We won’t exclude voting against the rights issue.”
The former Dutch phone monopoly spent 1.35 billion euros acquiring wireless spectrum in the Netherlands in December. It faces a new challenger there from Sweden’s Tele2 AB, which will offer consumers mobile services after buying its own spectrum in the same auction. That makes the Netherlands one of the few European countries in which the number of mobile operators is growing rather than shrinking, increasing competition and potentially driving down prices.
Moody’s Investors Service rates KPN’s debt Baa2, the second-lowest investment grade, while Standard & Poor’s ranks the debt one step lower, at BBB-.
Slim’s decision to invest in KPN was the first major foray into Europe for America Movil, which dominates Mexico’s wireless market and operates throughout Latin America, typically in close competition with Spain’s Telefonica. The group also built a 23 percent stake in Telekom Austria AG last year, prompting speculation Slim could eventually attempt to merge his European assets.
At the time, Slim’s son and America Movil co-chairman Carlos Slim Domit described the KPN deal as an attempt to find opportunity in “hard times” for Europe’s economy ahead of an eventual recovery in the region.
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