KPN has confirmed approaches from KKR and EQT/Stonepeak over a possible takeover of the Dutch operator. No negotiations were held, and a price was not given, KPN said. KKR seems to have given up after shopping around, and announced last month a joint venture with T-Mobile Netherlands to develop fibre infrastructure (Open Dutch Fiber). As for EQT, which is already active in the Netherlands, we expect the story is not yet over. The market appears more doubtful, with KPN's share price falling after the latest news.
We assume that any formal bid from EQT will have to be friendly. EQT is not a telco and needs the management on board to lead the company. Replacing the board is too big a risk. KPN can also throw up its defences against a hostile takeover, and the Dutch state will want to weight in, given the essential nature of KPN's infrastructure.
KPN said it does not see any added value in the two bids. In our view this means the following:
- EQT does not help increase the capex budget, as KPN's recently announced joint venture with APG does. EQT seems to want to continue with the existing investment plans.
- No significant synergies could be realised from the takeover. This suggests a merger with Delta Fiber, the Dutch operator owned by EQT, is not on the cards.
EQT will still need to offer a premium to win over shareholders (who include the entire KPN board). EQT is unlikely to go too far (like EUR 4-5 per share), as then it loses any value for itself. EQT presents itself as a 'normal' investor, which sees upwards potential, but which also wants to raise its own share price. This likely means an offer of at most EUR 3.75 per share. (According to the Financial Times, EQT was looking at an offer of EUR 3 per share, or EUR 12.5 billion for the equity plus USD 5.2 billion in debt).
The Dutch government will need to look closely at any eventual deal. While EQT may be from 'respectable' Sweden, telecom operators in other countries have had painful experiences with takeovers by 'vulture capitalists', such as TDC in Denmark and Ireland's Eircom. Assets are sold off and debt increased in order to pay dividends to the new owners. The two examples above also show how it can be done right, as their more recent owners have healthy long-term plans. Whatever happens, network investment (in FTTP, 5G) will have to be the focus and leverage like we see at VodafoneZiggo (roughly twice KPN's current level) unacceptable.
