UPDATE 4-America Movil ends KPN pact, may eye buy-out

Mon Jul 29, 2013 12:48pm EDT

By Gilbert Kreijger and Elinor Comlay

AMSTERDAM/MEXICO CITY, July 29 (Reuters) - Dutch telecom group KPN's biggest shareholder, billionaire Carlos Slim's America Movil, has ended an agreement to keep its holding below 30 percent, a sign that it may bid for the whole company.

America Movil was entitled to end the agreement after its regional rival Telefonica bid 8.1 billion euros ($10.7 billion) for KPN's prized German unit E-Plus, casting doubt over the future of America Movil's European investment.

America Movil now may increase its shareholding to the level that would trigger an offer for the whole of KPN, but it is not clear that the Latin America-focused company is ready to take such a big step in Europe.

That America Movil ended the standstill and shareholder agreement was to be expected, said a person close to the situation, but it does not shed much light on what Slim plans to do about his reported opposition to the E-Plus deal.

"America Movil is trying to telegraph its opposition and signal that he wants to wring out a higher price from Telefonica for the Germany deal," the person said.

"It's possible that Slim could bid for the whole of KPN, but I think that's unlikely, and KPN and Telefonica should call his bluff. There will be a lot more of these types of moves from now to October, when the KPN/E-Plus (deal) is put to shareholder vote."

KPN shares closed up 4.59 percent at 1.98 euros, while America Movil shares fell as much as 2.7 percent to 13.43 pesos on concern the company might bid for all of KPN, which would take it over its target leverage limits.

A STRETCH

"We believe that the termination of the relationship agreement, in combination with widely reported rumours that AMX (America Movil) finds the sale price of E-Plus too low, could increase the likelihood of AMX preparing a bid for KPN," ING analyst Emmanuel Carlier said in a note to clients.

Some analysts said that a full takeover would be a stretch for America Movil, with its net debt to expected 2013 core profit (EBITDA) of around 1.6 times at the end of June and a share buyback plan in progress.

The initial investment in KPN "was predicated on the basis that we would not risk the credit ratings that we had from the rating agencies, and that obviously has not changed," America Movil Chief Financial Officer Carlos Garcia Moreno said on a conference call on Friday discussing second-quarter results.

Slim's flagship could alternatively sell its KPN stake, but only after E-Plus was sold, boosting KPN's share price. America Movil paid an average price of 3.24 euros per share to build its KPN stake, according to Sanford Bernstein analysts.

"They can now increase their stake but I don't see it happening in the short term. I think they'll wait and see how it ends with E-Plus. It's possible that they are interested in the Dutch operations of KPN, and that they want to take it over in the medium term," said Christopher Ho, analyst at AFS Brokers.

Ho said he did not rule out America Movil selling its stake in KPN, but he did not expect that to happen soon.

America Movil might also consider a joint bid for KPN's E-Plus, perhaps with a partner such as AT&T, which has a stake in America Movil. But analysts at Bernstein said they believe such a venture would be unlikely since part of the value of the E-Plus sale is that its combination with Telefonica's German unit will create a market player with more weight to compete in Germany.

America Movil, whose own shares are down 22.7 percent over the past 12 months in spite of an aggressive buyback program, said on Friday it was still deciding whether to back KPN's proposed sale of E-Plus, regarded as its crown jewel. Germany is Europe's biggest mobile market, and Telefonica is a big Latin American rival of America Movil.

The Mexican company, which has lost about 2 billion euros on its KPN investment since last year, around half of its total investment, declined to comment on Monday, except to say that it would keep its two seats on KPN's board.

America Movil, which also has 24 percent of Telekom Austria , has said it views its holdings as long-term investments and is not concerned by the share price losses.

A KPN spokesman said America Movil had not communicated its intentions.

The two companies agreed their cooperation deal in February, at the time of KPN's 4 billion euro capital increase, including a rights issue to which America Movil subscribed.

In theory, this agreement was indefinite, with a two-month notice period. KPN said on Monday that America Movil was entitled to break the deal without notice after the E-Plus offer.

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