* Many Dutch companies use foundations that can block
* KPN most recent example using foundation to stop unwelcome
* KPN suitor America Moviles now discussing price
By Philip Blenkinsop
BRUSSELS, Sept 29 Dutch preference shares, once
a device to share the benefits of a family business, have become
an unbreachable barrier to hostile takeovers in the Netherlands,
most recently forcing Mexico's America Movil to the
America Movil, Latin America's biggest telecoms group,
quickly learned that it could not simply muscle in on its
target, Dutch peer KPN, after a foundation charged with
protecting the group exercised a call option on preference
shares that gave it half the company's voting rights.
Such a "poison pill" takeover defence, long accepted by
Dutch courts, is not just effective but also remarkably cheap,
costing just 25 percent of the shares' nominal value.
KPN's protective foundation was able to obtain its half
stake in a company worth a total 10 billion euros ($13.5
billion) for just 255 million euros.
America Movil, whose billionaire owner Carlos Slim wants to
extend his empire to Europe, is now talking to the company. It
said on Friday it might yet make a formal offer in October, a
month later than it had planned.
Many Dutch companies are protected by similar foundations -
including Ahold, ASML, DSM, ING
, Philips and TNT Express.
"They have the potential to make life hard and to derail a
transaction," said Nomura analyst Frederic Boulan.
"Such Dutch foundations have been used in the past to deter
hostile takeovers. Their angle is to safeguard the company and
its stakeholders, but also national interest."
The structure started out in the 1920s as a way of passing
down a family business, for example giving control to one child
and the right to a dividend to another. When expanded to include
companies in general in the 1970s, Dutch industry was quick to
see the benefits.
The Dutch government has said it plans to create a
foundation to protect ABN AMRO, the lender it nationalised in
2008 and could return to the stock market in 2015.
While common in the United States, largely in the form of
share issues to all existing shareholders, poison pill
constructions are rare in Europe.
Some states such as France or Italy have typically
intervened to prevent what they consider strategically important
industries falling into foreign hands.
The Dutch pride themselves on the open nature of their
economy, but broadly back the system of protective foundations
as a safeguard.
And while the European Union has challenged states seeking
to influence private businesses, for example through a golden
share that carries special rights, as has been used in Britain,
Germany and Spain, private owners or shareholders may decide
what they deem useful for a company, subject to national laws.
In its advice to shareholders, the European Federation of
Financial Services Users (EuroFinuse) advises voting against
poison pill plans if they last for five years or more, can be
renewed automatically and if they are triggered by third parties
taking stakes of below 15 percent.
PROTECTION OR PRICE?
In the Netherlands, a series of legal cases has determined
that protective foundations can only exercise call options if
there is a threat to the company's continuity or independence
and can hold preference shares for no more than two years.
In 1999, Dutch courts ruled Italian fashion house Gucci
could issue shares to a trust to fend off a hostile bid from
French peer LVMH and said an acquirer had a duty to
consult with a target.
In 2006, a court did rule against a foundation taking up
stock in a battle between Dutch industrial conglomerate Stork
and hedge funds seeking to break it up. The court said the hedge
funds had been shareholders since 2004 and could not be
considered outside "raiders".
The most recent case, from 2008, involved chip equipment
maker ASM International, which faced a threat from
activist shareholders seeking to overthrow management. Judges
upheld the right of an ASMI-related foundation to purchase
It is not clear exactly how KPN's foundation will act. The
five members of its board are Dutch former captains of industry,
including ex-chiefs of airline KLM and Shell Netherlands and a
number also sitting on the boards of other protective trusts.
The foundation, created when KPN was privatised in 1994,
says its role is not to assess the bid price, but to consider
the interests of shareholders, workers and Dutch society.
However, as a result of its intervention, the two parties
are now discussing price, according to KPN two weeks ago.
"This time, the foundation's move is to the advantage of
shareholders. There's no rival bidder, but there's the prospect
of a higher price," said Corne Van Zeijl, fund manager at SNS.
Dutch shareholder association VEB, while suspicious of such
constructions in general, broadly supports the KPN foundation's
decision to exercise its option.
"In principle we are not in favour, but we do see the
proposed bid as low. There's not much of a takeover premium, and
it leaves minority shareholders in a difficult position," VEB
director Jan Maarten Slagter said.
However, one option for America Movil could be to buy more
stock and then sit on its hands until the KPN foundation has to
cancel its shares in the next two years. America Movil's stake
would instantly double, leaving it obliged to make an offer for
KPN, but at the price it bought in the market, potentially lower
than the 2.40 euros per share it has proposed.