UPDATE 3-Slim builds in Europe with Telekom Austria stake

Fri Jun 15, 2012 9:08am EDT

* Buy will give Carlos Slim 23 pct stake overall

* Mexican tycoon seeking telecom expansion in Europe

* Paying 9.5 euros a share, or around $1.1 bln - source

* Shares up 2.3 pct

By Michael Shields and Leila Abboud

VIENNA, June 15 (Reuters) - Carlos Slim's America Movil is spending around $1.1 billion on a 21 percent stake in Telekom Austria, the Mexican tycoon's latest move to expand into Europe by scooping up the battered shares of distressed telecom companies.

America Movil said on Friday the purchase of shares from investor Ronny Pecik and his partner Egyptian telecom entrepreneur Naguib Sawiris will eventually give it a stake of about 23 percent in Austria's former state-owned telecoms company, which operates in central and eastern Europe.

The Mexican group gave no financial terms.

A person familiar with the situation said America Movil paid 9.50 euros per share, or about 880 million euros ($1.1 billion), and agreed to split potential future stock price gains with Pecik and Sawiris. The pair netted roughly 1 euro per share, or 93 million euros on their investment, the person said.

The purchase price is about 18 percent above Telekom Austria's closing share price on Thursday. At 1250 GMT, the shares were up 2.3 percent at 8.22 euros, a far cry from the high of 21.55 euros hit in late 2007.

America Movil, which is present in roughly a dozen Latin American countries, is establishing a beachhead in Europe where a combination of tough competition, regulatory pressure, and recession in many markets has beaten down some company valuations to near decade lows.

Slim has also mounted a raid on Dutch telecoms operator KPN via a tender offer for 28 percent of its shares.

KPN opposes the offer of 8 euros per share as too low and has hired bankers to try to ward off America Movil via asset sales or other options. The offer expires on June 27.

Slim's arrival in Europe has touched off a period of turbulence in the sector, with industry executives and analysts questioning if it will lead to long-awaited consolidation in some markets like Germany or Spain.

Executives from France Telecom and Iliad welcomed Slim to Europe in separate interviews at the Reuters Global Media and Technology Summit this week.

"Slim knows that these assets are at low valuations since he knows the telecom business," said Thomas Reynaud, the chief financial officer at Iliad, France's newest mobile operator.

"He knows there are good deals to be done, but we'll soon see whether he has some broader industrial plan."

Reuters reported on Thursday that Pecik was in advanced talks to sell his stake to Slim.

AUSTRIAN WELCOME

Guenther Schmitt, senior fund manager at Raiffeisen Capital Management which owns shares in Telekom Austria, said the purchase had sparked speculation Slim might buy more stock.

"To change something, an investor needs a stake of at least 25 percent," said Schmitt. "The speculation on the market is that (Slim) wants more and will quietly buy more on the market. That should support the price in the months ahead."

Under Austrian law, investors from outside the European Union must get approval from the government to buy a stake above 25 percent in a local company the state has a strategic interest in. Once a shareholder reaches above 30 percent ownership in any firm, it must make a takeover offer for the entire group.

America Movil said it had bought a stake of around 5 percent in Telekom Austria taking its holding to 6.7 percent, and would get another 16 percent stake upon receipt of governmental and regulatory approvals. That part of the deal was expected to close this year.

"This acquisition positions AMX (America Movil) as a long-term strategic partner of Telekom Austria. It is part of AMX's geographic diversification strategy and provides an attractive presence in Central and Eastern Europe," the company said on its website on Friday.

Telekom Austria operates in Austria, Belarus, Bulgaria, Croatia, Liechtenstein, Macedonia, Serbia, and Slovenia. Tough conditions in Europe and fierce competition pushed its core earnings down nearly 9 percent in the first quarter but the company stuck to its 2012 outlook.

The Austrian state remains the largest shareholder of Telekom Austria with a 28.4 percent stake via holding company OeIAG. As an ex-state owned monopoly the group is also seen as overstaffed and having potential for cost cuts.

OeIAG welcomed America Movil as an investor in Telekom Austria, calling the Mexican group "an excellent strategic partner" with a long-term orientation.

The company itself also said it supported Slim's arrival and looked forward to "good cooperation."

The head of Telekom Austria's works council was less pleased, saying he would not accept more job cuts.

"Job cuts will not be feasible with us. We have been cutting jobs for 10 years now," Walter Hotz said on Friday, adding he had not yet been in touch with Slim.

America Movil said it was confident about Telekom Austria's potential and that Pecik was expected to remain vice-chairman of its supervisory board.

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