EQT is considering a takeover bid for KPN, according to a report from Bloomberg. There were few details in the story, but EQT is unlikely to be interested in synergies, as in most takeovers. The investor has seen that KPN, which is on its way to becoming a fibre company, is heavily under-valued. Rolling out a fibre network these days is becoming a licence to print money. KPN's defensive constructions have added a discount to its share price. If EQT can overcome these, the company is likely to offer a significant premium on KPN's current price.
EQT is reportedly consulting advisers still on a possible bid. It needs to consider a few important factors for a successful offer:
- KPN's defensive shareholder foundation, which can issue preference shares to dilute a hostile bidder's stake. EQT will aim for a friendly offer, and with a significant premium, it should have KPN's board (who are well rewarded with options) on side.
- The law against hostile control in the telecom sector, which is designed to protect vital infrastructure operators in the Netherlands from foreign influence. With a Swedish background, EQT is unlikely to face problems with this. Even better would be to get a few Dutch pension funds on board (as Brookfield was reportedly planning last year).
- Overlap with Delta Fiber. KPN's previous attempt to buy CAIW was blocked by competition regulators, so a new deal may mean having the sell the Zeeland cable network. Ziggo and T-Mobile are potential candidates.
It's unclear whether EQT sees any obstacles here. What is clear is these are depressing KPN's share price, providing more room to make an attractive bid.
No synergies, just cash
EQT has built up a significant portfolio of telecom companies (Deutsche Glasfaser and Inexio in Germany, Adamo in Spain, etc.), but is not really a telecom operator trying to merge these all together. The main reason for nearly all takeovers - synergies - does not hold in this case. More likely, EQT sees KPN as a bargain, due to its under-valued share price. It can quickly create value by rapidly expanding KPN's fibre network in the coming years and then selling at a higher valuation.
A comparison can be made with the UK regional operator Kcom, which was the subject of an auction to resolve a bidding war in 2019. In the end Macquarie bought the company for GBP 627 million. Kcom is a type of mini PTT in the Hull area of England and had around 200,000 fibre connections deployed. This corresponds to a value of EUR 3,500 per line. If we give KPN a slightly lower ARPU, its 2.6 million FTTP lines alone are worth around EUR 7.8 billion. It costs KPN about EUR 800 for each new fibre line, so the message is clear: rolling out FTTP creates serious value.
KPN has more than just a fibre network; it also owns 4.5 million FTTC/VDSL lines, 1.1 million ADSL lines, a DTT network with 134,000 users, 7.21 million customers on its mobile network, an IoT network and a range of additional business services unrelated to the network. Its current market capitalisation of around EUR 10 billion is clearly less than the sum total of its assets. As a result, EQT should be able to offer a significant premium to shareholders, including the management board.
