KPN, Telefonica and America Movil have agreed to a higher price for KPN's German subsidiary E-Plus. In addition to EUR 5 billion cash, KPN will receive a bigger stake in Telefonica Deutschland of 20.5 percent, up from 17.6 percent when the deal was first announced in July. This increases the enterprise value of E-Plus to EUR 8.55 billion from EUR 8.10 billion. Telefonica will have an option to increase its stake in the German company by 2.9 percent in a year, for EUR 510 million (plus interest and minus dividends). America Movil said it will vote for the E-Plus sale at the KPN extraordinary shareholders meeting on 02 October, as well as continue with its takeover bid for the rest of KPN.
One can only guess what was all said behind the scenes in order to negotiate the new terms. It's surprising that America Movil is willing to give up E-Plus, as it was largely assumed that its takeover bid for KPN was aimed at getting its hands on the German subsidiary. An extra half billion from Telefonica is unlikely to have been the deciding factor. More likely the private foundation set up to protect KPN's interests was threatening to issue preferred shares in order to dilute to America Movil's stake in the Dutch operator at the EGM.
The question now is what the Mexican company plans to do with a company that's only active in the Netherlands and Belgium (see our earlier commentary). It will likely focus KPN more on developing FTTH in the Netherlands and fixed services in Belgium. The stake in Telefonica Deutschland can still serve as springboard for expansion in Europe. The company may see a chance to acquire all of Telefonica Deutschland at some time in the future. If it wants to expand even further in Europe, it will have to acquire local players, such as SFR in France. However, in most countries the multinational groups (Deutsche Telekom, Orange and Vodafone and to a lesser extent Telefonica, 3 Group and Tele2) already have the markets tied up.
A buy-out of Telefonica in Germany can't be ruled out if the Spanish company decides to narrow its focus to Spain and Latin America. If that happens then a few other Telefonica subsidiaries may be up for sale. It has already sold its Irish operations to 3 and that could leave the UK and Czech Republic up for grabs.
For the moment, it's a waiting game, for America Movil to launch its bid for KPN and then to see how many shares are tendered. The EGM on 2 October has become less interesting, but the pressure will be on KPN and America Movil to present a clear strategy to the market.
