Carlos Slim expected to swoop on Telekom Austria

LONDON/VIENNA Thu Jan 30, 2014 3:03am EST

Mexican billionaire Carlos Slim attends a presentation of a digital platform, which was created in partnership with the Carlos Slim Foundation and online course platform Coursera, inside Soumaya museum in Mexico City January 29, 2014. REUTERS/Edgard Garrido

Mexican billionaire Carlos Slim attends a presentation of a digital platform, which was created in partnership with the Carlos Slim Foundation and online course platform Coursera, inside Soumaya museum in Mexico City January 29, 2014.

Credit: Reuters/Edgard Garrido

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LONDON/VIENNA (Reuters) - Mexican billionaire Carlos Slim's America Movil (AMXL.MX) is expected to stay ahead of any transatlantic rush into European telecoms markets this year with a bid for majority control of Telekom Austria (TELA.VI), bankers and industry sources say.

Hopes of more consolidation and with it improving margins in European telecoms markets have already boosted share prices in the last year.

While AT&T (T.N) has just ruled out bidding for Vodafone (VOD.L) in the next six months, analysts believe the U.S. group still sees potential in Europe's growing demand for mobile broadband services at a time when competition is heating up in its home market.

But it was Slim who spotted Europe first, making his landfall with the acquisition of stakes in Dutch group KPN (KPN.AS) and Telekom Austria in 2012 and spending 4 billion euros ($5.5 billion) in the process, only to see the value of his stakes fall and a subsequent attempt to take over KPN repelled.

That leaves his sights set on Telekom Austria, and the formation last month of a new government in the Alpine republic should open the way for Slim to start negotiating with the new administration about increasing his stake from about 27 percent, bankers and industry insiders say.

Austria's government owns 28 percent of Telekom Austria via a state holding company, OIAG.

"I expect Slim to make an offer for the majority of the company sooner or later," said one source familiar with the matter. "It could be in two weeks or six months."

Slim, keen not to suffer another rejection in Europe, wants to reach agreement first with the Austrian government to secure majority ownership.

The two sides have had contact but negotiations over a specific deal were stymied by the Austrian elections in September last year and the subsequently lengthy process of establishing a new coalition government.

A pending reform of the OIAG state holding company could, however, still cause further delay.

Asked on Monday on the sidelines of a company event whether ownership questions came up during Telekom Austria's frequent discussions with the America Movil representatives on its board, Chief Executive Hannes Ametsreiter told Reuters: "No. We just discuss business."

Asked about Slim's intentions, he said: "I can't comment because I don't have any information. It's their decision." He added: "We have a very good relationship. It's been like that from the start."

America Movil declined to comment.

RIGHTS ISSUE

One scenario for a possible deal would leave Slim with 51 percent of the share capital, the Austrian government with 25 percent instead of 28 percent currently, while the rest would remain listed on the Vienna Stock Exchange, said bankers and an industry source.

A new share issue, which analysts expect could take place after approval from Telekom Austria's shareholder meeting on May 28, would be an opportunity for America Movil to increase its stake in a politically acceptable way.

At the company's current market valuation of 2.8 billion euros and with a share capital increase expected to be in the region of 1 billion euros, the rights issue alone would not be sufficient to give Slim a majority.

But he could easily use such a share offer to raise his stake to 30 percent, the threshold for having to make a mandatory takeover offer.

Austria, trying to plug a $25 billion budget gap over the next five years, may choose not to spend money on a rights issue and allow its stake to be diluted, although the state has said it is committed to maintaining a blocking minority of at least 25 percent.

Another idea being pitched is for the government and America Movil to pool their stakes in a shareholders' pact, banking and industry sources said.

Such a move would assure the Austrian government of having a continuing say in the company, which is seen as being strategically important for the country, and would prevent America Movil and the OIAG from voting against each other on important decisions.

America Movil's response to the idea has so far been lukewarm, said a source close to Telekom Austria, while a spokesman for OIAG declined to comment.

However, Movil's chief executive Daniel Hajj said in November that no hostile takeover bid for Telekom Austria was planned and he regarded America Movil as a stable partner for the Austrian state.

UNCERTAIN ADVENTURE

America Movil bought most of its Telekom Austria stake from investors Ronny Pecik and Naguib Sawiris in June 2012 for 9.50 euros a share, or more than $1 billion, when the shares were trading at roughly 8.15 euros, and the rest on the market.

Analysts have been puzzling over why Slim is particularly interested in Telekom Austria, which struggles in a fiercely competitive market, other than that the opportunity arose with the sale of the stake held by Pecik and Sawiris.

However, the shares were trading down 1 percent at 6.29 euros on Wednesday and so far America Movil's European adventure has failed to impress its own investors, as the investment to date has increased Movil's debt and hit its profits.

Bankers and analysts have not ruled out a renewed bid for KPN and some predict Slim could look to enter Italy again, where he was blocked from investing in Telecom Italia in 2007.

A senior banker familiar with the telecoms sector said he did not believe the tycoon's ambitions in Europe have diminished. Slim still wants to reduce America Movil's dependence on Mexico, where it earned two thirds of its operating profit in 2012 and where regulatory changes are threatening its position.

"In Mexico, the regulation is changing, politicians have finally decided to act and the competition authorities are following," he said, adding that America Movil's cash flow would suffer.

"Clearly, Europe is his bet for the future."

($1=0.7313 euros)

(Additional reporting by Angelika Gruber in Vienna; Editing by Carmel Crimmins and Greg Mahlich)

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