MEXICO CITY/AMSTERDAM Mexican billionaire Carlos Slim extended his power in Europe on Thursday, taking control of more than a fifth of Dutch telecoms group KPN in the teeth of opposition from the company.
Slim's America Movil, which has been expanding in Europe, said it had raised its stake in KPN to 20.92 percent, closing in on its objective to acquire up to 28 percent.
On Wednesday, KPN failed to find a buyer or partner for its coveted German unit E-Plus, hurting its efforts to fend off Slim, the world's richest man, who a day earlier held only 8.7 percent of the company.
Slim, 72, has been offering 8 euros per share to increase his stake in KPN, but has managed to build the larger shareholding over the past two weeks at a lower price than that.
According to Reuters calculations, the share purchases on Thursday detailed by America Movil - accounting for about 12 percent of KPN - cost Slim some 1.27 billion euros ($1.60 billion), at an average of 7.6 euros per share.
The unsolicited offer by America Movil closes on June 27.
KPN had been trying to sell E-Plus to Telefonica SA of Spain to unlock value, push up KPN's shares and ward off the bid by America Movil. But the E-Plus deal fell through on Wednesday.
"KPN have tried their best but within the limited time frame they have struggled to deliver a clear path to get the share price above 8 euros", said Stan Pearson, head of European equities at Standard Life.
Other investors, who asked not to be identified, said America Movil's offer period could be extended if the company does not acquire 28 percent by the time the tender closes. America Movil could also buy more shares in the open market and launch a new tender offer later.
Chief Financial Officer Carlos Garcia Moreno told a conference call America Movil was seeking strategic partnerships in Europe without taking on big debts or undue risks.
One fund manager said KPN's announcement late on Wednesday that it could not find a buyer for E-Plus was a nasty surprise to institutional investors who had to decide for administrative reasons earlier that day whether to tender their shares or not.
"We had decided not to tender. Now I'm trying to reverse that," the investor said. "If they (KPN) can't sell assets, you need to look at it again. How can they revitalize their business? Their dividend strategy is clearly unsustainable, but if you cut the dividend, it loses its appeal."
KPN shares closed down 5.3 percent at 7.48 euros.
ON THE ROAD
America Movil has run out of potential takeover targets on its home turf and has recently set its sights on Europe in search of undervalued assets.
"What this illustrates really is the tremendous value of some of the European telecoms at the moment. They are trading at record lows," said HSBC analyst Richard Dineen.
The Mexican company agreed to buy 21 percent of Telekom Austria for about $1.1 billion, while its tender offer for the larger chunk of struggling KPN could cost up to $3.25 billion.
Standard Life's Pearson said America Movil had not provided much detail on its plans, but added that having them as a substantial shareholder "backstops the balance sheet, they have a lot of expertise in telecoms and they know the KPN assets."
Telekom Austria and KPN combined have operations in 12 countries and 57 million mobile subscribers.
Garcia Moreno said America Movil was not talking to anyone outside of Austria and the Netherlands, two countries which have avoided the worst of Europe's ongoing sovereign debt crisis.
"We need to work on consolidating these investments (in Europe)," he told the conference call on Thursday. "We have a lot of work ahead."
Having purchased big stakes in two European companies, America Movil is likely to sit tight for the time being, said Alejandro Gallostra, an analyst with BBVA Bancomer.
"I think the company made it very clear that this is all (acquisitions) for now because they are limited by leverage if they don't want to lose ratings from credit agencies," he said.
However, Gallostra said that given America Movil's fast cash flow generation, the mobile giant could reduce leverage levels within a few quarters and go on the prowl again.
Prior to America Movil's announcement of its new stake, KPN on Thursday again urged shareholders not to take up the Mexican firm's offer because it undervalued the company.
KPN said it has decided to put its Belgian business, BASE, up for sale next month. KPN hopes to raise 1.6 billion to 1.8 billion euros from the disposal of Belgium's third-biggest mobile phone company, people familiar with the matter have said.
The Dutch telecom also said it would "maintain an active dialogue" with all shareholders, including America Movil.
One fund manager said KPN's chief financial officer and investor relations team had "done a lot of road shows in the past few weeks" urging shareholders not to accept America Movil's offer.
Some investors cited various reasons for selling KPN shares, from increasing competition from the likes of cable company Ziggo to the prospect of a cut in its dividend.
"KPN is still losing market share in broadband to cable, is hurt in mobile by the shift from voice to messaging services. It may soon have to fight new mobile entrants and it may face more pressure in the corporate market due to the increasing economic uncertainties," Rabobank analysts said in a research note.
"Furthermore, we see a risk that the current dividend of 0.90 euro is not sustainable as of 2013."
KPN's failure to find a buyer or merger partner for E-Plus, which some analysts had valued at between 8 billion euros and 10 billion, leaves the company valued at about 11 billion euros.
KPN could try to derail America Movil's approach through a risky "poison pill" defense -- handing preference stock to KPN's "Stichting" or foundation, enabling it to outvote other shareholders.
That move could backfire if there are legal challenges, but some investors predicted KPN could try it if Slim built a stake of more than 20 percent and tried to get a seat on the board. ($1 = 0.7933 euros)