Slim poised to succeed in KPN move

AMSTERDAM Thu Jun 21, 2012 4:15pm BST

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AMSTERDAM (Reuters) - Mexican tycoon Carlos Slim on Thursday looked well placed to succeed in a bid for a major stake in Royal KPN NV (KPN.AS) after the Dutch telecoms group failed to find a buyer or partner for its coveted German unit E-Plus.

KPN's talks with cash-strapped Spanish peer Telefonica SA (TEF.MC) over a German deal - intended to unlock value, push up KPN's shares and ward off the unsolicited approach by Slim's America Movil (AMXL.MX) - fell through just days before the Mexican company's offer closes on June 27.

"The most likely looking outcome right now is that America Movil ends up with 15-30 percent of the stock," Stan Pearson, head of European equities at Standard Life, told Reuters.

"KPN have tried their best but within the limited time frame they have struggled to deliver a clear path to get the share price above 8 euros", the price America Movil is offering in its tender for up to 28 percent of KPN.

Other investors, who did not want to be identified, said that even if America Movil does not acquire 28 percent by the time the tender closes, the offer period could be extended.

America Movil could also buy more shares in the open market and launch a new tender offer later.

One fund manager said KPN's announcement late on Wednesday that it could not find a buyer for E-Plus came as a nasty surprise, as some institutional investors had to decide for administrative reasons earlier that day whether to tender their shares or not.

"We had decided not to tender. Now I'm trying to reverse that," the investor said.

"If they (KPN) can't sell assets, you need to look at it again. How can they revitalise their business? Their dividend strategy is clearly unsustainable, but if you cut the dividend, it loses its appeal."

KPN shares were down 4.84 percent at 7.519 euros by 1428 GMT.

ON THE ROAD

America Movil has run out of potential takeover targets on its home turf and has recently set its sights on Europe in search of undervalued assets.

It has agreed to buy 21 percent of Telekom Austria (TELA.VI) for about $1.1 billion, while its tender offer for a chunk of struggling KPN, in which it has built up a stake of 8.7 percent, could cost it as much as $3.25 billion.

"As an investor, we have had very little substantive detail from America Movil as to what their real intentions are for the group," Standard Life's Pearson told Reuters.

But having them as a substantial shareholder "backstops the balance sheet, they have a lot of expertise in telecoms and they know the KPN assets," he added.

KPN will respond after the market closes on Thursday but has already said the offer price undervalues its business.

One fund manager said KPN's chief financial officer and investor relations team had spent the past few weeks calling on shareholders, urging them not to accept America Movil's offer.

"They have done a lot of road shows in the past few weeks while (chief executive) Eelco Blok has been trying to sell E-Plus," he said.

NEGATIVE VIBES

Some investors said there was no reason to hold on to KPN shares given a host of negative factors, ranging from increasing competition on its home patch from the likes of newly-listed cable company Ziggo (ZIGGO.AS) to the prospect of a cut in its dividend.

One fund manager questioned whether Blok would still be chief executive a year from now.

"KPN is still losing market share in broadband to cable, is hurt in mobile by the shift from voice to messaging services. It may soon have to fight new mobile entrants and it may face more pressure in the corporate market due to the increasing economic uncertainties," Rabobank analysts said in a research note.

"Furthermore, we see a risk that the current dividend of 0.90 euro is not sustainable as of 2013."

KPN's failure to find a buyer or merger partner for E-Plus, which some analysts had valued at between 8 billion euros and 10 billion, leaves the company valued at about 11 billion euros.

The company could still use a tactic common in the Dutch corporate world - a risky "poison pill" defence to derail America Movil's approach.

But such a move - handing preference stock to KPN's "Stichting" or foundation that could outvote other shareholders - is fraught with uncertainty and could backfire through legal challenges.

Some investors predicted KPN would use that tactic if Slim built up a stake of more than 20 percent and then tried to get a seat on the board and influence strategy.

(Additional reporting by Sinead Cruise in London; Editing by David Holmes and David Cowell)

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