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Standoffish Mexican

24 Jul 2013 By Quentin Webb

If Carlos Slim wants to stop KPN’s retreat from Germany, he’ll need a pretty convincing counter-proposal. The Mexican billionaire has withheld his blessing from the selloff agreed between the Dutch mobile operator and buyer Telefonica. That’s awkward, given his America Movil group is by far KPN’s largest shareholder.

It’s not clear precisely what Slim’s misgivings are, or how deep they run. But if he does want to derail the sale, his chances of success would be significantly improved if he came up with a compelling alternative deal. Combination of KPN’s E-Plus unit with Telefonica Deutschland, creating a stronger No. 3 in German mobile, has been discussed for years. Hence many investors cheered on July 23 when the 8.1 billion euro ($10.7 billion) sale was finally unveiled. Here were huge cost savings, a well-priced exit for KPN, and perhaps the start of a wider push to consolidate Europe’s sickly telecoms markets.

But Slim appears less happy. His two representatives on KPN’s eight-strong supervisory board, installed when he backed the group’s 3 billion-euro rights issue earlier this year, either abstained or voted no, a person familiar with the matter says. Perhaps the disagreement is strategic. When Slim bought into KPN and Telekom Austria last year, he no doubt saw value, but he also wanted to learn how Europe’s markets worked. Losing your toehold in the continent’s biggest economy diminishes the portfolio.

Or it may be financial. Slim is an avowedly long-term investor. KPN’s exit looks generous in the context of current earnings numbers. But E-Plus is investing heavily. That is one reason EBITDA is contracting 30 percent this year. If the unit wins customers and rebuilds margins, today’s price could look much less generous with hindsight.

Whatever the issue, it will be difficult for Slim’s America Movil to cause real trouble. True, it holds nearly 30 percent of KPN. But the deal only requires 50 percent approval, and other investors will almost certainly think this deal trumps the status quo. Telefonica’s still-stretched balance sheet, meanwhile, means it would balk at paying more.

As for alternatives, one possibility mooted by Bernstein suggests America Movil could team up with AT&T to buy either KPN or E-Plus outright. That sounds unlikely. But if Slim is to do any more than fume, he will have to come up with some sort of cogent alternative.


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