--KPN says it has abandoned talks on consolidating Germany's
mobile market
--Sources say that KPN was close to selling its German unit
E-Plus to Telefonica for just over EUR10 billion
--KPN blames failure on situation in financial markets
--KPN reiterates its recommendation that shareholders don't
accept America Movil's offer
AMSTERDAM--Dutch telecommunications company Royal KPN NV
(KPN.AE) has lost its best option for warding off a partial
takeover by Mexican mobile giant America Movil SAB (AMX, AMX.MX)
after talks with Spain's Telefonica SA (TEF) over merging their
German assets failed.
Combining KPN's E-Plus, Germany's third-biggest mobile operator
and its most profitable, with Telefonica's O2, Germany's smallest
player, would have created a formidable competitor for markets
leaders Deutsche Telekom AG (DTE.XE) and Vodafone PLC (VOD) and the
No. 1 operator in terms of customers.
KPN had been hoping that selling the asset would unlock its full
value and deter shareholders from accepting America Movil's EUR8 a
share cash offer which expires June 27.
In its statement late Wednesday, KPN didn't mention Telefonica
but people familiar with the matter have said the two have been in
informal talks for some weeks.
KPN said only that adverse conditions in financial markets have
meant that no agreement could be reached at this point in time, and
talks have been terminated."
Telefonica declined to comment.
America Movil, controlled by billionaire Carlos Slim, wants to
raise its stake in KPN to roughly 28% from 8.5% at present, paying
roughly EUR2.5 billion ($3.2 billion). KPN has recommended its
shareholders not to accept America Movil's offer, which it deems
too low. Instead it said it was evaluating all possible options for
E-Plus with the aim of unlocking its inherent value for the benefit
of shareholders who have seen their shares fall 21% within the past
year.
The KPN bid was Mr. Slim's first significant foray into Europe
and brings his longtime Latin American rivalry with Telefonica into
the Spanish company's own backyard. America Movil and Telefonica
are Latin America's No. 1 and 2 telecom companies, competing
fiercely in markets like Mexico and Brazil.
Mr. Slim's earlier attempt to expand in Europe was thwarted by
Telefonica when the Madrid-based company outbid the Mexican company
to buy a minority stake in Telecom Italia in 2007.
Earlier Wednesday, KPN was close to a deal to sell E-Plus to
Telefonica in a part cash, part share deal, for just over EUR10
billion but Telefonica failed to secure the necessary funding, a
person familiar with the matter said.
Telefonica is suffering from the harsh economic conditions in
its domestic market and is heavily debt burdened. Its EUR57 billion
($72.4 billion) net debt now exceeds its market capitalization of
EUR43.2 billion ($54.9 billion) after the share lost 40% of its
value in the past 12 months.
E-Plus has a market share of roughly 16% in Europe's largest
economy. It contributed EUR3.24 billion to the KPN's revenue in
2011, or a quarter of the total, and is likely to one of the main
lures for Slim's interest in the ailing Dutch incumbent.
America Movil has said it is looking to widen its footprint
after its expansion within the Americas has given it stable profits
and cash flow and it has been eying the falling value of European
telecom companies which are facing heavy regulation as well as
expensive network upgrades on top of the weak economic
conditions.
Last week, America Movil said it has agreed to buy 21% of
Telekom Austria AG (TKA.VI) to raise its stake to about 23%. In
contrast with KPN, Telekom Austria Chief Executive Hannes
Ametsreiter welcomed the move, saying that America Movil's
substantial holding is a positive development for the company.
Wednesday KPN shares closed 0.6% lower at EUR7.90,
underperforming the broader market, while Telefonica gained 0.7% to
EUR9.94.
Write to Archibald Preuschat;
archibald.preuschat@dowjones.com