Investors bet on successful America Movil bid for KPN

KPN's share price has remained below the bid value announced by America Movil ahead of the expected launch of the offer in September. At the same KPN is moving ahead with its planned sale of E-Plus in Germany, with the shareholder vote now scheduled for 02 October. While KPN announced the EGM, AMX said the same day it had secured the necessary financing for the KPN bid. The Mexican company, which already holds just under 30 percent of KPN's shares, is offering EUR 2.40 per share. The stock closed at EUR 2.24 on 20 August and rose slightly the following day after AMX's announcement on financing and the submission of the bid document to regulators. What can we deduct from all this?

There are in general three scenarios possible:

• The share price remains well below the indicated bid price. This suggests the market does not expect the takeover bid to be successful.
• The share price remains just under the value of the bid. This implies the market does expect the bid to be successful. Investors buying the shares will no longer accumulate interest but can expect a certain return within a few weeks or months when they sell the shares at the bid value. As time passes the amount of interest otherwise generated declines, and the share price will move gradually towards the bid value.
• The share price is higher than the bid value. The market is betting on a higher bid, either from the same bidder or a rival offer. The higher the share price, the greater the chance of a higher offer.

KPN's current share price suggests that America Movil will probably be successful in its attempt to take full control of the Dutch operator. The difference between the current and bid price is around 6 percent and narrowing slightly, implying the market sees less of a chance of failure for the bid. There are other issues at play as well. To start with, some investors who have held the shares for some time already are taking their profits now already, putting pressure on the share price. They can give up that last bit of profit, as the share price could fall again if the bid is not successful. Other big investors will be busy with arbitrage. The above-mentioned 6 percent is well above normal interest on cash at the moment, and those working with large amounts of shares will not pay much in transaction costs. It's very likely such players include JP Morgan, which recently reported a 3.5 percent stake in KPN with the securities regulator.