Deutsche Telekom has shown interest in bidding for KPN, according to Reuters. Last autumn, the German operator considered making an offer for its Dutch counterpart. However, the plans were shelved pending completion of its sale of EE to BT in the UK. Once that deal is completed, the company may reconsider the idea. DT is reportedly interested in expanding to neighbouring countries. KPN's share price rose 5 percent after the report. Other media, however reported that DT is not interested in the Dutch company.
Such an acquisition would be in line with the ongoing consolidation in the market. Many telecom operators are seeking consolidation in mobile and convergence in fixed and mobile. A DT-KPN deal is a bit different case though. It's possible that Deutsche Telekom aims to create a pan-European company by bringing together former PTTs across the continent. It already owns a number of such operators in east Europe and is in line to acquire similar companies up for sale (eg Slovenia, Serbia). DT could look further in west Europe, where there are still a number of independent PTTs (Belgium, Switzerland).
In terms of synergies and advantages of scale, KPN would not add a lot. The merger with T-Mobile Netherlands would lead to synergies, but there is little to gain in the fixed market. Fixed networks are focused on the national market and subject to regulations. KPN does have the advantage of strong market positions, but there is also a downside: the Dutch market is fairly unique in that it also has a nearly national cable network. The mobile market also continues to suffer from price pressure. DT could benefit from the nearly 10 years of experience with rolling out fibre networks, which could be shared across the DT group.
Overlap in Nedetherlands and Germany would require some assets to be divested: T-Mobile Netherlands and KPN's stake in Telefonica Deutschland. T-Mobile is likely difficult to sell (or it would probably already be owned by someone else), but there are always possible candidates (Liberty Global, Altice, Iliad). KPN's 20 percent stake in Telefonica Deutschland, inherited from the sale of E-Plus, is not a core asset and will be sold regardless (lock-up expires 01 April). America Movil's remaining stake in KPN should only make the deal easier, as Carlos Slim has lost his interest in the Dutch operator. By acquiring just this stake, DT would already have 21.4 percent of KPN.
KPN's potential warchest is also appealing for DT. The Dutch operator still has some of the proceeds from selling E-Plus, and its other foreign activities could be monetised (Telefonica Deutschland, Base and iBasis; see our earlier commentary). Another possibility is holding on to Base to make a renewed attacj on the difficult Belgian market.
This brings us to the core issue: would Deutsche Telekom be better at managing KPN's assets than the Dutch operator's current management? This is the only thing ensuring the acquisition would create value.
