Billionaire Carlos Slim is going back to the drawing board with his plan to buy up cheap European telecommunications assets, plotting his next move after Royal KPN NV (KPN) executives fended off a $9.7 billion takeover.
After failing to persuade KPN’s management to accept a price of 2.40 euros ($3.25) a share, Slim’s America Movil SAB (AMXL) backed out yesterday of a planned tender offer to gain control of the Dutch phone carrier. The Mexico City-based wireless company retains a financial stake of about 30 percent in KPN.
KPN slumped as much as 10 percent to 2.18 euros in Amsterdam today. Slim now must decide whether to keep those shares, which have fallen about 70 percent since he acquired them for 8 euros apiece last year. Even if he retains them, Dutch law prevents him from making a new takeover bid for six months. A move elsewhere in Europe, such as an increase in his stake in Telekom Austria AG (TKA), would also help him achieve his goal of expanding America Movil beyond Latin America.
“We probably expect them to increase their stake in another European operator, and the natural option would be Telekom Austria,” said Carlos de Legarreta, an analyst at Corporativo GBM SAB in Mexico City. “Europe is an attractive market, even if it’s being pressured by the slowing macro-economy. They are mature markets with a good return.”
America Movil shares dropped 1.2 percent to 13.85 pesos at the close in Mexico City. KPN traded 7.9 percent lower at 2.24 euros in Amsterdam, and Telekom Austria was unchanged at 6.36 euros in Vienna.
Europe’s economic struggles have lured investors such as Slim and billionaire Li Ka-shing to hunt for bargains in the phone industry, where growing competition and tight regulation have squeezed profit margins. AT&T Inc., which owns 9 percent of America Movil, has also eyed investments in Europe, saying the continent is on the cusp of a boom in demand for high-speed wireless Internet service.
KPN rival Ziggo NV (ZIGGO) has also deflected a foreign takeover attempt. The cable-television company, based in Ultrecht, Netherlands, said yesterday that shareholder Liberty Global Plc (LBTYA:US) made an “inadequate” offer for the rest of its shares, and it’s uncertain whether it will receive an improved bid.
America Movil hasn’t made a decision on what to do with its KPN stake and will study Dutch regulations to determine if its options are limited because of its withdrawn tender offer, said Arturo Elias, Slim’s spokesman. The company didn’t drop its KPN bid to pursue another offer, and the decision isn’t a negotiating ploy with KPN, he said.
“Our position is firm and serious,” he said in a phone interview.
In a statement, KPN said America Movil’s offer undervalued the company and didn’t do enough to protect minority shareholders.
“The KPN boards weren’t able during their numerous discussions to obtain an acceptable proposal on the content, firmness, duration and enforceability of America Movil´s commitments to KPN’s stakeholders,” the company said.
Speaking on a conference call today, Chief Executive Officer Eelco Blok would’t comment on the price KPN was seeking during negotiations.
“There is of course a possibility that we’ll get back at the table again,” he said. “It’s difficult to assess at the moment how the relationship with America Movil will develop.”
Slim directed America Movil’s highest-ranking executives to the talks, including CEO Daniel Hajj, Chief Financial Officer Carlos Garcia-Moreno and Elias, who is director of strategic alliances for the company’s fixed-line unit. Slim, 73, didn’t personally take part in the negotiations, said Elias, who like Hajj is a son-in-law of the billionaire.
The companies failed to reach an agreement even after America Movil helped KPN get a better price from Telefonica SA (TEF) for its German unit, E-Plus. After discussions with Slim’s company, Madrid-based Telefonica agreed in August to raise its bid for E-Plus to 8.55 billion euros from 8.1 billion euros. The transaction is awaiting regulatory approval. Blok said today he expects approval by mid-2014.
A Telefonica press official declined to comment.
KPN had argued that a tax offset from the sale of E-Plus makes the company more valuable, people with knowledge of the discussions said earlier, asking not to be identified because the talks were private.
KPN was seeking as much as 3 euros a share from America Movil, said Robin Bienenstock, an analyst at Sanford C. Bernstein & Co. in London.
“They came in to make an offer for a company without fully understanding the rules of the market,” she said.
Peter Schiefer, a spokesman for Vienna-based Telekom Austria, declined to comment.
KPN’s shareholders should have been the ones to determine whether the offer was appropriate, Elias said. He said America Movil couldn’t take its offer directly to them because KPN’s independent foundation, which was set up to defend the company’s stakeholders, used a protection mechanism to gain an automatic 50 percent stake in KPN, letting it fend off any bid for control.
“The actions taken by the foundation are detrimental not only to all KPN shareholders –- including those who wished to participate in the intended offer –- but also detrimental to clients, employees and other stakeholders of KPN who envisioned being part of a solid company with long-term vision,” America Movil said.
The foundation only tried to facilitate the negotiations and didn’t block the deal, said Walter Samuels, a spokesman for the independent group.
“I’m not sure if this is definite, or if it could be used to put some pressure on negotiations,” said Alejandro Gallostra, an analyst at Banco Bilbao Vizcaya Argentaria SA (BBVA) in Mexico City. “Europe is in the process of consolidating, which we will see in the next few years, so having such an important stake in Europe is strategic.”
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