By Sara Webb
AMSTERDAM, June 20 Dutch telecom KPN's attempt to sell its German unit E-Plus to Spain's Telefonica - a move intended to ward off an unsolicited approach by Carlos Slim - has fallen through, just days before the Mexican tycoon's tender offer closes.
KPN's failure to find a buyer or merger partner for E-Plus, which some analysts had valued at between 8 billion and 10 billion euros, now leaves the Dutch telecoms operator with few other options to keep the Mexican billionaire at bay.
Slim's mobile phone giant America Movil has little left to snap up in Latin America and has turned its sights on Europe in search of undervalued assets.
In recent weeks, it has launched a tender offer to buy up to 28 percent of struggling KPN, a move that could cost as much as $3.25 billion, and has built up a stake of more than 8 percent so far. It has also agreed to buy a 21 percent stake in Telekom Austria for about $1.1 billion.
KPN is due to respond on Thursday to America Movil's tender offer, which closes on June 27, but the Dutch telecom has already said the offer price of 8 euros per share undervalues its business.
KPN's shares closed at 7.9 euros, down 0.55 percent, on Wednesday.
The Dutch firm faces tough competition in its home market and has been looking at divesting its German and Belgian businesses.
Slim, the world's richest man, has said little about his intentions for KPN, his first venture into Europe.
But he is unlikely to want to sell E-Plus, the jewel in KPN's crown that accounts for most of KPN's customers, and has the highest core profit margin in the group, at 42 percent.
However, KPN's efforts to "unlock value" in E-Plus in order to fend off the Mexican group have so far failed, and on Wednesday it said that talks with parties - which it did not name - had broken off.
"The current adverse conditions in financial markets have meant that no agreement could be reached at this point in time, and talks have been terminated," KPN said in a statement.
KPN, which has a stock market capitalization of 11.3 billion euros, added that it believes other parties recognize the "significant value" in the large German market where consolidation is expected.
Spain's Telefonica had been seen as a possible white knight for E-Plus, even though it is strapped for funds and has a heavy debt load.
One possibility would have been to merge E-Plus with Telefonica's O2 Germany, people familiar with the matter had told Reuters, followed by a partial listing of the new company.
But earlier on Wednesday, a source told Reuters that Telefonica had no plans to interfere.
America Movil had no immediate comment.
With just a few days left before the tender offer closes, KPN could still use a tactic that's common in the Dutch corporate world, unleashing a risky "poison pill" defense to derail America Movil's approach.
But such a move - handing preference stock to KPN's "Stichting" or foundation that could outvote other shareholders - is fraught with uncertainty and could backfire through legal challenges by America Movil or KPN's own shareholders.
Robin Bienenstock, analyst at Bernstein Research, said KPN's statement read like an appeal to the foundation to take action.
"The reality is that Mr Slim's bid is opportunistic and finds KPN in a moment in which defense by a sale of assets to Telefonica is nigh on impossible. We think that there is a common sense argument for the foundation to give KPN's management a stay of execution, and enact their shares temporarily. But it will at this point be up to their lawyers and KPN to persuade or dissuade them of it."
She added, "We think that Telefonica could afford this deal were it to sell certain assets, and they are motivated to do so. But with so much focus on Spain, and its creaking banking system it is hard to see how they could possibly justify a deal today. In addition, an extension of time by any action of the foundation would have to give Telefonica enough time that they could sell some of those assets in an orderly fashion and (with luck) find a happier Spanish window onto the debt markets."