UPDATE 4-Morgan Stanley emerges as big KPN investor

Thu May 10, 2012 1:03pm EDT

* Morgan Stanley holds 10.01 pct of KPN

* KPN shares up 0.9 pct, telecoms index up 0.9 pct

* America Movil says M.Stanley not holding shares on its behalf

By Sara Webb and Gilbert Kreijger

AMSTERDAM, May 10 (Reuters) - Morgan Stanley has emerged as one of the biggest shareholders in KPN, the Dutch telecoms firm that Mexican billionaire Carlos Slim has targeted as a long-term investment and a stepping stone into Europe.

Morgan Stanley does not hold KPN shares on behalf of Slim's company America Movil, which is seeking to take a 28 percent stake in KPN via a tender offer, a spokeswoman for Slim's group told Reuters.

It was not clear whether Morgan Stanley, which declined to comment, held the stake on its own account or for clients.

A filing with Dutch financial market regulator AFM shows that Morgan Stanley has the equivalent of 10.01 percent in KPN, ranking behind The Capital Group Companies with over 15 percent.

The announcement means another substantial investor is building a stake in KPN just as the company weighs how to respond to the unsolicited Movil offer, which it sees as undervalued.

How the various big shareholders align themselves could affect the future of the Dutch telecom operator, which also has units in Belgium and Germany.

Stan Pearson, head of European equities at Standard Life, a top 40 investor in KPN, said it was too early to judge whether America Movil's expected investment was a good thing for KPN despite a near 18 percent jump in the share price since the announcement.

"Until we have a clearer idea of AM's intentions, we would reserve judgment on that," Pearson said. "It's not unusual in Europe for minority shareholders to be squeezed and for situations like these to evolve into effective changes of ownership and control at a company.

America Movil said on Monday it had bought about 4.8 percent of KPN in the open market and proposed a tender offer, worth about 2.64 billion euros, to raise its stake to 28 percent.

Morgan Stanley's position was registered on May 4, the same day that KPN's shares hit a seven-year low of 6.349 euros and just three days before America Movil announced plans for its tender offer of 8 euros per share.

"I see it as a coincidence that one of the big brokers bought a big stake to benefit from the strong stock decline recently," said Tom Muller, analyst at Dutch private bank Theodoor Gilissen, adding that Morgan Stanley may be holding KPN shares for clients who use the bank's asset management services.

KPN shares were up 1 percent to close at 7.80 euros.

KPN has hired Goldman Sachs and JP Morgan to help it weigh how to proceed after the Movil offer.

The Dutch firm is worried Movil would gain too much power over its strategy, especially a long-mooted sale of its German business worth 8-10 billion euros, without offering enough of a premium for the privilege, said a person close to the situation.

But since Slim's tender offer will be made in early June directly to shareholders, many of whom have watched in dismay as KPN's shares slid 35 percent in the past year, KPN's management and board cannot just refuse it or hold out for a higher price, and have limited options at their disposal.

KPN could try to negotiate a higher valuation for its shares or pursue a long-mooted deal to sell off its German unit E-Plus and argue that such a deal would generate more value for shareholders.

Another possibility if KPN sees America Movil's approach as hostile could be to make use of a foundation, known as a "Stichting Preferente Aandelen".

Dutch companies typically use such a foundation to protect themselves against shareholders who are considered hostile, either because they have launched a hostile takeover or want the removal of certain board members.

The company usually issues shares to the foundation, which effectively remains dormant until they are needed, at which point they becomes active and can be called on to vote against the hostile shareholders at an AGM or EGM.

KPN has such a foundation, but lawyers familiar with the use of such tactics said it is highly questionable whether it would make sense to go down this path now.

"This, strictly speaking, is not a hostile takeover. It doesn't make sense for the foundation to trigger a call option now, because it can only be a temporary measure and there is no specific threat" to KPN, one lawyer said, adding that KPN's foundation would have to decide whether exercising the call option made sense and was good corporate governance.

Morgan Stanley analyst Luis Prota wrote in a research note that the foundation structure was unlikely to be a quick fix for KPN to ward off Movil.

"We do not see a poison pill available... In our view, [the foundation] would just allow KPN some time to consider alternatives, but clearly would not be a definitive solution."

Deutsche Bank is advising America Movil on the KPN deal, which would also involve handling the tender offer if it goes ahead, while Clifford Chance is advising it on legal matters.

A spokeswoman for America Movil declined to say which bank was holding its stake in KPN.

Capital Research and Management Company, part of The Capital Group Companies is the biggest investor in KPN, according to data from Dutch financial market regulator AFM and KPN. In January it lifted its interest to 15.1 percent from 10.1 percent, according to AFM filings.

In addition KPN said in its annual report that Capital Builder Inc gave notification on Jan. 25 that it held a 5.08 percent stake. The company also said that as at the end of last year no shareholder other than Capital Research held 5 percent or more of the company.

The Capital Group has so far declined to comment on the Movil deal or its own shareholding.

Morgan Stanley now has a direct capital stake of 4.93 percent, and owned the remaining 5.08 percent in futures, options and swaps, the regulatory filing with the AFM showed.

It did not own an interest in KPN - either via shares, options, American depository receipts, or swaps - that in total amounted to 5 percent or more before the filing was made on May 4, according to AFM.