KPN has agreed to sell its German mobile operator E-Plus to Telefonica. The Dutch operator will receive EUR 5 billion cash as well as a 17.6 percent stake in Telefonica Deutschland. A merger of E-Plus and Telefonica's O2, the third and fourth largest operators on the German market, has been rumoured for many years. As recently as last year the companies discussed a deal, but could not reach an agreement. They have now struck an agreement based on expected synergies (opex and capex) of EUR 5.0-5.5 billion.
The transaction raises a number of questions:
- Will it receive regulatory approval? The merged entity will become the market leader (in customer numbers, not revenues) and narrow the German market to three network operators. If the regulator does find a problem with the deal, it could mean divesting spectrum, towers or wholesale customers.
- How will the estimated synergies be achieved? Does this include the sale of overlapping assets (towers, spectrum, shops, backhaul)?
- Why is KPN not paying a special dividend with the proceeds? It has just completed a rights issue, making the cash superfluous.
- Why does KPN plan to resume dividend payments for 2014, a year earlier than previously planned? It still needs to invest heavily in LTE and FTTH, both in the Netherlands and Belgium. Additional spectrum auctions are also planned in both countries, KPN faces large debt payments due in the coming years, and it's expected to exercise its option to buy out the rest of Reggefiber. It's also still facing tough competition, especially on the Dutch mobile market.
- What is KPN going to do with a minority stake in Telefonica Deutschland? With the Netherlands and Belgium now its core focus, an eventual sale of the German stake seems likely.
- What's going to happen in Belgium? It may now be considered a core activity, but if a buyer emerges with a good price, this could also be sold.
- How does America Movil stand on all of this? KPN has not made clear whether America Movil's representatives on the supervisory board agreed to the deal. The E-Plus deal will give the Mexican company an indirect stake in a subsidiary of its arch-enemy Telefonica.
- How will this affect America Movil's plans for European expansion?
