UPDATE 5-Slim eyes eastern Europe after Telekom Austria deal

Thu Apr 24, 2014 6:52pm EDT

* America Movil takes operational control of Telekom Austria

* Sees Austria as base to increase European business

* Will invest 1 billion euros via rights issue (Adds comment from biographer, analyst, background on Europe)

By Georgina Prodhan and Christine Murray

VIENNA/MEXICO CITY April 24 (Reuters) - Mexican tycoon Carlos Slim plans to use Telekom Austria as a base to build up his presence in European telecoms after sealing a deal with the Austrian state to take control of the company.

Slim's America Movil will invest up to 1 billion euros ($1.38 billion) in Telekom Austria via a rights issue, on top of spending as much as $2 billion to buy out minority shareholders in a mandatory public offer.

The deal represented the first successful acquisition for Slim in Europe, where he has invested more than $4 billion in the past two years, building stakes in Telekom Austria and Dutch KPN, which subsequently rejected a full takeover offer.

Controlled by one of the world's richest people, America Movil said it would spend the money from the rights issue on acquisitions in new markets, infrastructure, research and development, new products and services.

America Movil's Chief Financial Officer Carlos Garcia Moreno said the company began looking for opportunities in other regions two or three years ago and saw Telekom Austria as a platform for expansion into central and eastern Europe (CEE).

"There came a point where we felt there was just not very much more to be done in terms of expansion in the Americas," Garcia Moreno told a news conference in Vienna on Thursday.

Telekom Austria is in seven CEE countries outside Austria, but has limited itself lately to modest acquisitions in markets where it already operates. Garcia Moreno said the company will consider purchases outside Telekom Austria's existing footprint.

Since Slim entered Europe in 2012, he has been linked to other possible telecoms investments in countries including Poland, Serbia, Turkey and Hungary. But America Movil has not admitted any interest and has made no formal approaches.

Slim's biographer, Jose Martinez, said the tycoon was keen to snap up whatever he could to establish himself in Europe.

"It's a way of compensating for the measures coming in Mexico," Martinez said.

America Movil is facing increasing regulation and competition in Latin America, especially in Mexico, where it controls most of its home market. Its market capitalization of $45.4 billion dwarfs Telekom Austria's $4.1 billion.

"Diversifying into tiny Telekom Austria is probably a good financial investment but hardly enough to offset the more general malaise," Bernstein telecoms analysts wrote in a note.

TURBULENT MEETING

Shares in former state monopoly Telekom Austria jumped 6.7 percent to 7.10 euros after America Movil said it would offer 7.15 euros per share for the outstanding stock in an offering to be made in the next few weeks. The Mexican firm does not have a fixed target stake in Telekom Austria, Garcia Moreno said.

The shareholder deal signed late Wednesday night combines Austrian state holding company OIAG's 28 percent of Telekom Austria with Slim's 27 percent in a syndicate holding structure.

America Movil said it would fund the takeover offer with a credit line set up for the purpose. OIAG will reduce its stake to 25 percent plus one share in the rights issue.

Shares in America Movil fell by more than 1 percent in early trading on the Mexican stock exchange before paring losses.

Under the 10-year agreement, Austrian interests would be protected by giving OIAG veto rights as well as the appointment of the CEO and chairman, keeping the company's headquarters in Austria, and maintaining a Vienna stock market listing.

The agreement came after a turbulent meeting of the OIAG's supervisory board that lacked a quorum for 12 hours because of a boycott by labor representatives who criticized its lack of explicit job guarantees.

"Everything, including the question of how much will be invested in Austria and how ... will lie in the hands of a private company that is exclusively focused on profit and is based on another continent," Werner Muhm, the influential head of Vienna's Chamber of Labour, said in a statement.

Thursday's news conference was the first time an America Movil executive had appeared in public in Austria in the two years since it first acquired a stake in Telekom Austria.

The shareholder agreement, which has not been published, does not specify how the billion-euro proceeds from the rights issue would be spent, according to people who have seen it.

Some analysts were concerned at the lack of a clear statement of how the funds would be used.

"Proceeds could be used to fund a mix of deleveraging, domestic fibre, and CEE acquisitions. Depending on the mix and the targets, this could increase or diminish the value of the company," wrote JP Morgan analyst Hannes Wittig.

Analysts said the offer looked generous, even at a modest 11 percent premium to the six-month moving average. They said it valued Telekom Austria in line with its peers at about 6.1 times earnings before interest, taxes, depreciation and amortization despite its higher risks in CEE and relatively low cash flow.

Doubts persist about what America Movil's plans are.

"It's still not 100 percent clear what their intentions in Europe are," said Ken Berlin, senior research analyst at Legal & General Investment Management America in Chicago. ($1 = 0.7231 euros) (Additional reporting by Angelika Gruber in Vienna and Elinor Comlay and Dave Graham in Mexico City; Editing by Elaine Hardcastle, Jeffrey Benkoe, Tom Brown and Cynthia Osterman)