America Movil SAB’s plan to acquire Royal KPN NV (KPN) has hit a snag over price disagreements, with the Dutch phone carrier’s management holding out for a higher offer, according to people with knowledge of the discussions.
KPN is pushing for America Movil to raise its initial 2.40-euro-a-share proposal, arguing that a tax offset from the sale of its German unit makes the company more valuable, said two of the people, who asked not to be identified because the talks are private. America Movil is pointing to the recent entry of Ziggo NV (ZIGGO) into the Dutch mobile market as evidence of deteriorating prospects, justifying the initial price, one of the people said.
America Movil is also having trouble winning over KPN’s largest shareholder, an independent foundation whose stake of just under 50 percent allows it to fend off takeovers if it disagrees with them, the people said. KPN is seeking about 2.65 euros a share, or 7.9 billion euros ($10.7 billion), to reflect its analysis of the tax decision, one person said.
“With KPN looking for a raised bid of 2.65 euros a share rather than something closer to 3 euros, this keeps it still within reach for America Movil,” said Usman Ghazi, an analyst at Berenberg Bank in London. “America Movil staying at 2.4 euros could be an attempt to drive expectations down before the actual tender offer.”
America Movil gained 3.3 percent, the most since July 26, to 13.43 pesos in Mexico City, where it is based. KPN shares were little changed at 2.36 euros at the close in Amsterdam.
“The big question remains what America Movil’s end game is with KPN and if it has other plans for KPN that require funds,” Ghazi said.
The discussions show the difficulty of assessing the value of companies in Europe’s beleaguered telecommunications industry, which is suffering the effects of a sluggish regional economy, increasing competition and tight regulation. KPN’s shares have slumped by about 61 percent in the past two years.
Stefan Simons, a KPN spokesman, declined to comment, as did Walter Samuels, a KPN foundation spokesman. A press official of America Movil, Latin America’s largest mobile-phone company, also declined to comment.
Dutch tax authorities are allowing The Hague-based KPN to recognize a tax loss of 3.7 billion euros on the sale of its E-Plus German unit to Telefonica SA (TEF), the company said on Sept. 16. Its shares rose 1.1 percent that day to 2.35 euros, still below America Movil’s offer price.
The decision will reduce the tax due on KPN’s income from next year. KPN shareholders are scheduled to vote on the German deal tomorrow. Mexican billionaire Carlos Slim, who controls America Movil, and Telefonica CEO Cesar Alierta put off years of rivalry in Latin America to salvage an $11 billion deal, after the Madrid-based carrier sweetened its bid for E-Plus by at least 450 million euros.
America Movil views its offer as already accounting for the tax loss, one of the people with knowledge of the matter said.
“Even if it would make financial sense for America Movil to sweeten its bid for KPN due to the tax benefit from the sale of E-Plus, I don’t think Slim will be willing to put his company’s balance sheet at risk,” said Andres Bolumburu, an analyst at Banco de Sabadell in Madrid. “I still believe Slim’s main purpose was to force Telefonica to boost its offer for E-Plus rather than trying to take over KPN.”
Last week, America Movil said it wouldn’t file its formal offer for KPN shares until October, a delay from its earlier September time frame.
The two sides are also still trying to resolve questions over job protections and investment plans, the people with knowledge of the matter said.
Cable-TV provider Ziggo, which is 28.5 percent owned by Liberty Global Plc (LBTYA:US), is pushing into the Dutch mobile market with low-priced packages, following a playbook pioneered by French discount operator Iliad SA. (ILD) In France, Iliad has driven down prices for a range of mobile services, affecting competitors including Orange SA and Vivendi SA (VIV)’s SFR.
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