Underselling itself

27 February 2004

The Dutch telecoms operator’s shares have attracted a management discount after a botched bid and a bungled profit warning. KPN’s management may be guilty of underselling the company’s prospects. But it does not look hellbent upon destroying value.

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KPN's share price has fallen by 11% since February 19, the day before its bid for mmO2 leaked. The stock was trading at E6.40 in midday dealings on Monday.

The Dutch telecoms operator has declined to explain the full structure of the bid, which is designed to share deal synergies with the UK mobile group, to its investors. However, KPN did say it foresaw E2bn of synergies from the deal, net of integration costs. That figure is roughly E1bn lower than the amount many investors consider achievable.

KPN's stock took another near10% tumble as recently as December 10. Then the company told investors that its operating profit in 2005 would be E1.5bn or E500m less than market expectations.

Later that day, the Dutch group called this a "conservative estimate" and suggested that it might actually do E300m better than that.

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