KPN has rejected the partial bid from America Movil, calling it "opportunistic" and suggesting it would give America Movil de facto control over the company with only a minority stake. Shareholders would also miss out on a premium if there was a full bid for KPN. Furthermore, America Movil has so far refused talks with KPN on a shareholders agreement. At the same, KPN has put its German unit E-Plus up for sale, after in April proposing the same for the Belgian unit Base. Dutch broadcaster NOS reports that Telefonica would be interested in E-Plus, while the Dutch paper Financieele Dagblad writes that KPN has met with potential investors in the Middle East and China.
To start with, it's surprising that a board of directors has such an outspoken opinion on the value of the bid, without really providing any quantitative support for this. The share price is a caprice of the market, and there is little to be done about it. If the price is too low, then you buy the shares; if you think it's too high, then you sell the shares. Most recently, the market has chosen for the latter in KPN's case. Its KPN's right to think otherwise, but the management needs to keep its focus on leading KPN, and not the stock valuation. America Movil probably also thinks EUR 8 per share is too low, otherwise it wouldn't have launched the bid; any investor wants some upward potential.
Reasons for the fall in KPN's share price include:
- A weak performance on the Dutch broadband market, due to tough competition from the cable operators.
- A weak performance on the Dutch consumer mobile market, with a continuous fall in market share.
- Major financial obligations looming, such as the spectrum auction in the autumn, the roll-out of FTTH and LTE and the buy-out of the Reggefiber joint venture.
- The possible arrival of a fourth mobile operator in the Netherlands.
Whether shareholders are certain to get a premium in the event of a bid is questionable. If America Movil makes a 'low' bid for all the shares, then one can assume a bidding war will emerge, especially if the assets are as attractive as KPN claims. And if another player bids, then it will need to make a high offer in order to get America Movil on side. This plays to the shareholders. America Movil's bid of EUR 8 per share offers a considerable premium on the price before the offer was announced (EUR 6.35). The risk is then that after the bid process, the share price will fall back again.
A sale of E-Plus could provide a positive boost, but it will all depend on the price. KPN estimates the synergies from a merger of E-Plus with another company could reach EUR 4 billion. Split between the two parties, with EUR 2 billion flowing to KPN, the value could be EUR 1.35 per share. However, a bid by Telefonica, which has said it wants to list O2 Germany in order to help reduce its debt, now appears less likely than a sale of O2 to E-Plus. What's interesting is that however it works out, KPN is heading towards a deal with Telefonica - America Movil's biggest competitor in Latin America. In short, uncertainty is at an all-time high - and this is unlikely to help the share price.
