Telefonica to buy E-Plus from KPN

[Motel75]

Telefonica (O2) is buying Germany's E-Plus from KPM. This means that if approved, the two smallest (and worst) networks will be combining in 2014, turning Telefonica into the number-1 operator in the country. A lot of the business of both O2 and E-Plus comes from prepaid MVNOs, so this is likely to have some effect on prepaid pricing and availability.

Telefonica expands in Germany with €5bn E-Plus deal - Telegraph

http://dealbook.nytimes.com/2013/07/...plus-from-kpn/

[Marschel]

Since they announced the deal German folks are out of their mind. The deal is not approved so why don't they relax? I don't get it.

[Motel75]

I typed "KPM" but meant "KPN". Yes, and Carlos Slim, who owns a lot of KPN, is not happy with the price, so there could be a lot of negotiations ahead.

[Marschel]

I've read that KPN skiped the mexican guy during the sales pitch. However what's your opinion of the deal?

[Donal]

Originally Posted by Marschel

However what's your opinion of the deal?

The German Authorities will prefer to maintain four separate networks. So, Carlos will probably be "encouraged" to make a bid for eplus himself.

[inquisitor]

According to telegeography yesterday AMX has cancelled an agreement with KPN that forbade AMX to increase its share in KPN beyond the important threshold of 30% of the voting capital (today AMX holds between 25% and 30%-1 share in KPN). Regardless of this agreement the 30% threshold is important because once it is exceeded according to article 5:70 Wet op het financieel toezicht the holding entity (AMX) must submit a takeover bid for all outstanding shares.
The cancellation of the above mentioned agreements suggests that AMX intends to increase its share to 30% which will force AMX to submit a mandatory bid for the remaining 70%. It is unclear how much AMX would bid and how many shareholders would take their offer but in any case AMX will need to have available enough funds for a full takeover. Against this background I doubt that Carlos Slim will enter into a bidding competition with Telefonica, although I always thought he was reaching out for E-Plus when AMX acquired its share in KPN.

[rfranzq]

Originally Posted by inquisitor

The cancellation of the above mentioned agreements suggests that AMX intends to increase its share to 30% which will force AMX to submit a mandatory bid for the remaining 70%.

The ability to unilaterally cancel such an 'agreement' seems to me to mean that such agreements are meaningless.

Could one bid one-tenth the value or a share for the remaining shares?
No doubt not many would submit them, but the bidder would be happy to get them.

[inquisitor]

Originally Posted by rfranzq

The ability to unilaterally cancel such an 'agreement' seems to me to mean that such agreements are meaningless.

I have no idea why they had this standstill agreement at all but I assume that it contained a clause that allowed to cancel it upon certain events such as the sale of a substantial asset.

Could one bid one-tenth the value or a share for the remaining shares?
No doubt not many would submit them, but the bidder would be happy to get them.

The offered price must be "reasonable", which is defined as the highest price for which the offerer bought shares of the target during the last year and if he bought no shares the average volume-weighted stock exchange price over the last year. There are a couple of exemptions explained here which however does not seem to apply for AMX.
Since AMX has not purchased any additional KPN stocks since at least June 2012 the reasonable price will be based on the average VWAP which I guess will be below € 4.

[Donal]

Carlos Slim has been forced to enter a bidding war against Telefonica simply because America Movil and Telefonica are fierce global rivals.

In Mexico, the leaders of the current political consensus intend to significantly weaken Telmex and Telcel, so that competitors like Telefonica can gain a greater share of the Mexican telecoms market. America Movil sees salvation and future company growth in Europe.

In Europe, Telefonica is overburdened by debt and it recognises that America Movil's stake in KPN is a beachhead for Carlos Slim to enter into the wealthy German telecoms market. Telefonica sees salvation and future company growth in Latin America.

Center stage, KPN is playing its endgame. In Germany, limited radio spectrum purchases, limited network expansion and popular "discount" tariffs have maximised E-Plus's market value. Now is the perfect time for KPN to sell E-Plus.

America Movil and Telefonica are starring at each other, eye-to-eye. Both face difficulties raising the cash to buy KPN/E-Plus, and both will try and force an even higher purchase price on the other. The higher the final price, the higher the financial risk for the winning bidder.

Meanwhile, off-stage, AT&T is waiting to eat the corpse of the losing bidder. A heavily indebted Telefonica needs E-Plus to divert the unwelcomed attention of AT&T. And a diminished America Movil needs more than a toe-hold in Europe to divert AT&T's attention.

Final bids please! This is the last chance to bid for E-Plus, and to escape from AT&T!

[inquisitor]

Slim's aim to expand globally, especially into Europe, is pretty obvious as he - through AMX - has also built a stake in Telekom Austria (22.76%, currently worth € 0.5 bn) which in addition to Austria operates several cell networks on the Balkans.

While I wouldn't rule out AMX to make a counter bid just to force Telefonica to increase their bid and so withdraw more cash from them, I doubt that E-Plus is that attractive to other bidders that cannot realize such great synergy effects as Telefonica could do (up to an estimated € 5.5 bn). But most importantly E-Plus requires huge investments in its network and in spectrum licenses should it continue to run as a separate network since network quality is subpar and consumer awareness for network quality and bandwidth is growing quickly. The lack of lower frequency spectrum (just a paired 5 MHz block in the 900MHz band which will be reauctioned next year) and especially the lack of fibre network assets (important for backhauling) as well as any fixed-line operations (important for future femto deployment) is a major strategic disadvantage which makes it very difficult for E-Plus to keep pace with the other three players who each own a paired 10MHz-block of LTE800 spectrum and have nationwide fibre networks as well as fixed-line branches.
Against this background I doubt that it would make much sense for AMX to outbid KPN and then invest billions in a saturated, fiercely competitive market with a low pricing level.

Given AT&T's 9% share in AMX (including two board seats) and the fact that AT&T's CEO Randall Stephenson and Carlos Slim are friends I wouldn't expect any interference between these two. But AMX and Telefonica would both be a strategic fit for AT&T who so could become a transamerican carrier.