UPDATE 8-America Movil makes $9.6 bln bid for rest of KPN

Fri Aug 9, 2013 5:13pm EDT

* America Movil bids for 70 pct of KPN it doesn't own
    * Offer is 2.4 euros per share in cash
    * Challenges Telefonica's bid for KPN's German unit
    * KPN shares up 16 pct, Telefonica shares flat

 (Adds America Movil source comment, fresh analyst quote)
    By Alexandra Alper and Sophie Sassard
    MEXICO CITY/LONDON, Aug 9 (Reuters) - Mexican billionaire
Carlos Slim's America Movil defied  arch-rival
Telefonica with a 7.2 billion euro ($9.6 billion) bid
for the 70 percent of Dutch telecoms group KPN that it
does not already own.
    Spain's Telefonica made an $11 billion offer last month to
buy KPN's crown jewel, Germany's E-Plus, disrupting America
Movil's expensive - and on paper money-losing - foray
into Europe.
    America Movil and Telefonica together control about 60
percent of mobile phone business in Latin America. The Mexican
firm's purchase of stakes in KPN and Telekom Austria 
brought their rivalry to Europe, and the battle there now looks
set to rage for months to come. 
    European telecoms firms are mostly struggling with saturated
markets, recession-hit consumers, tough regulation and expensive
network upgrades, leading some to look at consolidation. 
    America Movil is still evaluating Telefonica's bid for
E-Plus, which is backed by KPN's board. But people close to the
matter have said Slim's company views the offer as too low and
fraught with regulatory risks, fuelling speculation that it
might try to block the deal or push for a higher price.
 
    Telefonica said on Friday its offer still stands and is
"definitive." 
    America Movil and Telefonica have been bitter rivals for
years in Europe and the Americas, going after the same spectrum
licenses and assets - most notably a battle for a stake in
Telecom Italia in 2007 - a fight Telefonica won.
 
   
    A Telekom Austria source said America Movil was likely to
launch a bid for the rest of that company as well. Under
Austrian law, the Mexican firm cannot bid below the 9.50 euros
per share that sources said it paid investor Ronny Pecik for his
stake last year.
    Telekom Austria declined comment on the matter. Shares in
the company closed up 8.7 percent at 5.726 euros in Vienna.
    Shares in America Movil, Latin America's largest phone
company, were down 6 percent on Friday on news of the KPN bid
and the specter of a potential rating downgrade if the
transaction is funded with debt and skews its debt/EBITDA ratio
which is a critical metric for ratings agencies.
    A source at America Movil said they could not provide
details about how they would finance the bid, saying much
depended on the take-up of the offer. 
    "By declaring his intention to make an offer for all of KPN,
Slim has in reality drawn a line in the sand that tells
Telefonica: This deal (E-plus) is not good enough," a person
familiar with the matter said.  
    Telefonica wants E-Plus in order to strengthen its challenge
to market leaders Deutsche Telekom and Vodafone
 in Germany, Europe's biggest economy.
    "It looks like Slim is speculating on how desperate
Telefonica is to get its hands on E-Plus," said a German
investor with shares in KPN, Telefonica and Telefonica
Deutschland, speaking on condition of anonymity.
    It was unclear whether America Movil's bid was the first
step of real negotiations to take control of KPN, or a
disruptive move aimed at making Telefonica pay more.
    "It is not clear at this stage what Slim's intention is. But
if you wanted to disrupt the E-Plus deal, there was not a better
way to do it," said a person familiar with the situation.
    Veronica Romo, a telecoms analyst at the MONEX banking and
brokerage group in Mexico City, saw two major attractions for
Slim - the prospect of a good deal and a chance to avoid tighter
regulations in the region. A sweeping telecoms sector overhaul
in Mexico hangs over Slim's dominant position in the market.
    "He is looking for other markets where he can continue
growing due to regulatory issues in Latin America, and Europe is
an important market," Romo said. 
    Analysts said Telefonica, which has sizable debts, might
struggle to pay much more for E-Plus, but they also questioned
whether America Movil was offering enough to win over KPN's
board and shareholders. They added that the Mexican firm's
finances were also looking stretched.
    Even if Slim secured 51 pct of KPN shares at the end of its
tender offer, due to Dutch corporate governance rules he would
need the backing of KPN's supervisory board to control the
company.
    "A 7 billion (euro) offer is a significant sum for (America
Movil) and will significantly reduce their ability to do other
M&A," said Espirito Santo analyst Will Draper.
        
    VALUATION 
    America Movil said on Friday it would bid 2.4 euros ($3.21)
per share in cash for the rest of KPN. That is about 35 percent
above the average closing price of KPN's shares for the last 30
trading days, but well under the 8 euros per share it paid in
May 2012 when it started building its KPN stake.
    The offer values the whole of KPN at 10.2 billion euros,
compared with the 8.1 billion euros that Telefonica has bid in
cash and shares for just E-Plus.
    KPN shares rose 16 percent to close at 2.320 euros, while
Telefonica shares ended flat at around 10.960 euros.
    "The premium is 20 percent to the share price so obviously
very good news from a KPN perspective," said Mark Benbow, a fund
manager in the global equities team at UK based Scottish Widows
Investment Partnership, which has shares in KPN.
    KPN said it was considering America Movil's offer and would
look at all options open to it. KPN shareholders are due to vote
on Telefonica's bid for E-Plus in the coming weeks. 
    A second person familiar with the situation said KPN
shareholders could be attracted to America Movil's offer because
it was all cash and did not have the regulatory and integration
risks associated with Telefonica's offer for E-Plus.
    ING analyst Emmanuel Carlier said America Movil's offer
seemed fairly priced, equating to an enterprise value (debt plus
equity) of 4.9 times KPN's forecast core profit. 
    However, that is much less than the multiple of about 9
offered by Telefonica for just E-Plus. The Spanish firm expects
hefty synergies from merging the German business with its
existing operations in that country. 
    "I think Slim has to increase his offer in order to get
people tendering their shares," said a second KPN shareholder,
also speaking on condition of anonymity.
    America Movil said it had invited KPN's supervisory and
management boards to meet "as soon as possible."
    The 160-year-old former Dutch telecoms monopoly has the
option to block unwanted bids by handing preference stock to its
"Stichting," or foundation..     
    KPN has been struggling to reverse a decline in revenues and
profit in the face of stiff competition at home, where it still
has a market share of about 45 percent in fixed-line and mobile
telephony. The firm, which also has operations in Belgium, was
slow to respond as consumers switched to free or cheaper ways of
sending mobile phone messages, according to analysts. 
    Deutsche Bank is advising America Movil. Goldman Sachs and 
JPMorgan have advised KPN in recent deals.   
 ($1 = 0.7471 euros)

 (Additional reporting by Sara Webb in Amsterdam, Ben Deighton
in Brussels and Harro ten Wolde in Frankfurt, Sophie Sassard and
Christopher Vellacott in London, Clare Kane in Madrid, Angelika
Gruber in Vienna and Gabriel Stargardter in Mexico City; Editing
by Mark Potter, Simon Gardner and Leslie Gevirtz)
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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