America Movil plans to increase its stake in KPN to 28 percent, from the current 4.8 percent. The Latin America operator plans a bid of EUR 8 per share for the additional shares, which represents a premium of 24 percent on the closing share price the day before the announcement (EUR 6.48). The bid would be worth in total around EUR 2.6 billion, and the transaction is expected to close in June. The stake must remain below 30 percent, otherwise stock market rules force America Movil to launch a bid for the entire company.
America Movil said that it's interested in international expansion to diversify its operations and expects synergies from working with KPN in areas such as roaming, content, marketing and operations. According to media reports, KPN said it welcomed the offer, which shows its shares were under-valued. In an official statement, the Dutch operator acknowledged the bid but did not comment further. According to America Movil, its geographic diversification has brought financial stability and higher ratings.
This is primarily an investment transaction. America Movil apparently considers KPN's shares considerably under-valued, not only at the past price of EUR 6.48 but also at EUR 8. This is good news for KPN's shareholders, and the stock will rise sharply. KPN is of course happy about that, even if the bid is still well below its peak of around EUR 12 per share last year. While America Movil also hopes for synergies, this is somewhat far-fetched. These will be minimal, and the transaction will first need to be followed by a closer cooperation. For America Movil, with its focus on Latin-America (apart from some small stakes in a few countries), the cooperation with KPN is something entirely new. For KPN itself, there are few direct benefits from the bid.
The company's valuation can be debated. This is a subjective issue, which highly depends on the expected future growth prospects and profitability. In terms of multiples (enterprise value divided by EBITDA), the share does not appear especially cheap based on current earnings estimates. France Telecom is valued about the same, Deutsche Telekom and Belgacom about 5 percent higher. The KPN share price has fallen sharply in recent months due to the operator's disappointing performance on the Dutch market. SMS revenues are falling quickly, its share of the broadband market is shrinking, and the TV market still remains of limited value. Furthermore, a possibly expensive spectrum auction is coming up later this year, which opens the door further to a newcomer on the Dutch mobile market. The company also faces the planned buy-out of Reggefiber in the coming years, which could approach a cost of EUR 1 billion (see our commentary ‘KPN driven to invest'). KPN meanwhile expects to achieve a turnaround by the end of 2012, both on the mobile and broadband markets.
It's highly questionable whether such a turnaround can be achieved in a few quarters. America Movil's stated confidence in KPN's strategy is a nice boost, but has little impact. When Blackstone a few years ago acquired a 4.5 percent stake in Deutsche Telekom, there were also high expectations, but the share price never rose above the acquisition price.
