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Dutch courage

1 June 2012 By Quentin Webb

Carlos Slim may drive KPN to poison. The Dutch telecoms group wants to dodge what it sees as a takeover-on-the-cheap from the world’s richest man. Slim is hoping to nab a near-28 percent stake at eight euros a share. KPN’s response is to wax lyrical about its standalone potential, and drop heavy hints about a possible German tie-up that’s been talked about for a decade. But counterpart Telefonica does not seem ready to trade.

Sticklers for corporate governance, look away now: KPN may buy time with poisoned pills.

Slim’s America Movil has already amassed a 5 percent stake in KPN and is offering to buy more shares until June 27, up to a maximum 27.7 percent. That has concentrated minds at KPN HQ. The company decries Slim’s opportunism and now says it will explore “strategic options” for E-Plus – its biggest overseas operation and Germany’s third-biggest mobile operator.

KPN says merging E-Plus with a rival could yield valuable savings – synergies that analysts hope would have a net present value of 3.5 to 4 billion euros. That only points in one direction: Telefonica’s O2 Germany. Antitrust concerns would probably nix a rival deal with the larger Deutsche Telekom or Vodafone. Even a German marriage between the offspring of the Dutch and Spanish parents might prompt some detailed scrutiny from trustbusters.

The problem is, debt-laden Telefonica has other ideas. The Spanish company is eager to conserve cash and is thinking about part-floating O2 Germany. What’s more, it denies talking to KPN about buying E-Plus – although of course that does not rule out other forms of collaboration. In any event, any combination looks both complex and some way off.

KPN says Slim is trying to obtain significant control at a cut price. But if its lobbying doesn’t keep investors on board, something else might help keep Slim at bay: an independent “preference shares foundation”. This Dutch version of the poison pill can block takeovers that would threaten the firm’s “continuity, independence and identity”. Foundations, in such cases, can exercise a call option triggering a huge issue of preference shares. That would dilute Slim’s influence and buy KPN significantly more time – in which it could thrash out deals in Germany. Or elsewhere.


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