America Movil (AMX) has surprised the market with an unsolicited takeover bid for KPN. It's offering EUR 2.40 per share, and the offer is conditional on acquiring at least 50 percent of KPN's shares. Why is it launching a bid now when just a few months ago it was saying it had no money for a takeover and was more interested in a long-term cooperation? The reason is clear: it wants to stop KPN from selling its German subsidiary E-Plus to Spanish rival Telefonica.
America Movil first acquired shares in KPN in May 2012, building up a stake of 28 percent. Shortly thereafter it bought 21 percent in Telekom Austria, later expanding this to 23 percent. After its first two investments in Europe, the Mexican operator said repeatedly it was looking primarily for long-term cooperations on the continent, and not acquisitions.
In May 2012, America Movil offered EUR 8 per share for its stake in KPN, a bid worth in total around EUR 2.6 billion. The company said then it was not interested in a full takeover of the Dutch operator and would keep its stake below 30 percent to avoid triggering the requirement for a full bid. KPN's management recommended shareholders reject the offer, calling it too low and "opportunistic". Not interested in giving the Mexican company a controlling stake, the Dutch company started looking at selling its Belgian unit Base and E-Plus in Germany, in an attempt to realise more shareholder value. This revived rumours of a merger of E-Plus with Telefonica Germany, but no deal materialised.
KPN CEO Eelco Blok and the company's board in the end had to accept that America Movil had no problem convincing shareholders to sell. By the end of its public offer in June 2012, almost 40 percent of KPN's shares were tendered, and the Mexican company ended up buying a 27.7 percent stake in KPN. Blok was forced to meet with AMX management and agree relations with the new shareholder. In early 2013 when KPN needed shareholder support for a rights issue of EUR 3 billion to strengthen its balance sheet, America Movil's backing was essential.
In the end the two companies reached an agreement in February 2013. America Movil, which by that time had 29.8 percent of KPN's shares, was given two seats on KPN's supervisory board in exchange for supporting the rights issue pro rata for its stake in the company. They also agreed to work on developing cooperation in operational and financial areas, such as international traffic and procurement, and America Movil would be subject to a standstill, not increasing it stake further in KPN.
In May America Movil again rejected rumours of a full takeover of KPN, saying it could not finance such a deal without putting its debt ratios at risk. However the Mexican company appears to be caught by surprise when KPN reached in July 2013
a deal with Telefonica to sell E-Plus. America Movil's board representatives reportedly abstained from voting on the deal, the Financial Times reported citing people familiar with the matter. AMX then said it was ending the shareholders agreement with KPN and shortly thereafter announced its takeover bid for the Dutch operator.
As we've written previously, America Movil's interest in KPN is mainly to do with gaining an entry on the German market through E-Plus. The Dutch fixed network has less interest, the mobile market in the Netherlands is difficult and also linked to the fixed activities, and the Belgian market is too small. Without E-Plus, KPN is a much less interesting partner for cooperation. To prevent such a situation - and also to stop Telefonica, America Movil's main competitor in Latin America, from strengthening its position - the Mexican company had two options: attempt to block the E-Plus sale in the shareholders vote on the transaction or acquire a majority stake in KPN, giving it management control. It has chosen the more direct approach, helped by the sharp fall in KPN's share price since its initial acquisition.
It seems unlikely that even if Telefonica raises its bid for E-Plus America Movil would support the deal. The company is interested not especially in the money from the sale, but in building up a long-term market position in Europe. The Netherlands, Germany and Austria form a good base for that. For Telefonica, the options include abandoning the takeover and selling off its own German activities instead, or launching its own bid for KPN. The former is unattractive given the importance of the German market and the latter could land it in a bidding war, something it doesn't need given the already weak state of its balance sheet.
If America Movil succeeds in its takeover bid, what will happen to KPN? America Movil could expand its stake in Telekom Austria and then merge the two companies. This would create a medium-sized player with activities in Austria, Belarus, Belgium, Bulgaria, Croatia, Germany, Macedonia, the Netherlands, Serbia and Slovenia. It could also consider divesting KPN's fixed activities into a new company, which could be sold or listed on the stock market. The Dutch government has little say in the matter, as it no longer holds shares or veto rights in KPN. The government said it is monitoring the situation given KPN's importance for the local economy, but in the end it is a decision for KPN's shareholders and not the state.
Will KPN's management try to prevent the takeover? The board has yet to comment on the offer, saying only that it's studying the proposal. Furthermore, there has been no change to the plans to sell E-Plus, with the EGM planned to take place in a few weeks. KPN does have the possibility of protecting itself from a hostile bid by issuing preference shares with special voting rights to a designated foundation. This would dilute the rights of other shareholders and give the foundation a veto right in any vote. However such a move would not likely meet current corporate governance standards or EU law, and the management would need to be extremely desperate - and have a few other major shareholders on its side - to pursue such a strategy. Given America Movil is only seeking a minimum 50 percent of KPN's shares, this is unlikely to prove an obstacle to the company.
It will be up to the shareholders to decide whether the Dutch company ends up in Mexican hands. Given the interest in America Movil's previous offer (almost 40 percent of shares tendered), Carlos Slim's company appears to have a very good chance of gaining management control and having its own say on whether E-Plus is sold.
In the end timing may be the determining factor. It will take time for America Movil to launch its official bid, and the EGM on the E-Plus sale will be held before any bid for KPN is completed. America Movil may simply be using the threat of a full takeover of KPN to force the company to rethink the sale of E-Plus and follow the Mexican company's strategy.
