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KPN Faces Another Takeover, Now With a Stronger Defense

Giles Turner and Ellen Proper
·4-min read

(Bloomberg) -- Dutch phone company Royal KPN NV is facing another potential takeover attempt, and its new suitor faces more hurdles than its predecessors.

EQT AB, the European private equity firm, is considering a takeover of KPN in what would be its largest-ever acquisition, Bloomberg reported Friday, citing people familiar with the matter. Shares rose as much as 8.4% in early trading on Monday, the most since March.

KPN has long been a target. Less than two years ago rival investment firm Brookfield Asset Management Inc. considered its own approach. Canada’s largest alternative asset manager held talks with Dutch pension funds PGGM and APG Groep NV, but a bid never materialized.

In 2013, billionaire Carlos Slim’s America Movil SAB attempted to acquire KPN for $9.7 billion. The bid stalled amid criticism of America Movil for not reaching an agreement with KPN’s management before taking its offer to the market.

New Law

To be successful, EQT will not only have to get KPN’s management on board and defeat a takeover defense available to Dutch companies known as a stichting -- it will also have to navigate a new law written to further strengthen the deal defenses of the nation’s businesses, which was approved by both houses of Parliament earlier this year.

“The Dutch government has a say in any deal, as KPN is a company with a high level of national interest,” said Konrad Zomer, analyst at ABN Amro. The combined powers of the stichting and the law “can block many deals. A takeover attempt for KPN won’t be straightforward.”

The buyout firm is in the early stages of discussing the feasibility of a deal with potential advisers and there’s no certainty it’ll lead to a bid, said the people, who asked not to be identified because deliberations are private. The firm could try to win over the Dutch target by touting its experience with telecom and infrastructure assets as well as its Nordic roots, where good corporate citizenship is prized.

Companies in the Netherlands are able to deter unwanted approaches by deploying independent shareholder foundations as a defense. Recent examples include Akzo Nobel NV, Mylan NV and Stork NV, which used preference shares to fend off efforts by hedge funds to fire the board and sell off units.

KPN, whose foundation was created after the Dutch government sold down its stake in 1994, is one of the most notable examples of this poison-pill defense.

In an attempt to control negotiations with America Movil, KPN’s foundation used preference shares to temporarily gain about half of the company’s stock. Though America Movil, the largest shareholder, had obtained approval from the Dutch financial regulator, it eventually withdrew its offer after concluding it couldn’t acquire enough stock to complete the deal.

EQT will also have to contend with a law that allows the Dutch government to block telecom deals on national security grounds. This has become a more delicate issue than when Brookfield made its approach, given U.S. lobbying of European governments to ban Chinese telecom equipment maker Huawei Technologies Co. from local networks.

The Dutch government has not implemented a ban, and KPN is still working with Huawei. However, it is choosing a Western vendor for its more sensitive core network.

Before Stockholm-based EQT has to face foundations and politicians, a price needs to be agreed. Shares of KPN have fallen 15% in Amsterdam trading this year and are near an all-time low, giving the company a market value of about 9.4 billion euros ($11.1 billion). That’s just under America Movil’s bid offer seven years ago.

“I think the KPN shares are undervalued and I can thus understand interest from private equity,” said Zomer. “Without any takeover premium I think the company is already worth 40-50% more than the current market value.”

Any bid would be a test for Chief Executive Officer Joost Farwerck, who has been in role for only a year, and has been struggling with a weak consumer unit and the pandemic.

Investment firm EQT’s interest in KPN, reported by Bloomberg News, would require a sizable premium for a successful bid, as well as an accord with the board and government on the level of infrastructure investments and employment. This could rule out an intervention by the KPN Foundation, which has an effective poison pill mechanism, and may tempt America Movil to sell its 16% stake, which was built at a high cost of 2.54 euros a share.

Erhan Gurses, analyst, Bloomberg Intelligence

EQT does have plenty of experience in telecom deals. It joined with Digital Colony Partners to acquire fiber network owner Zayo Group Holdings Inc. in an $8 billion deal completed in March, and invested in Dutch telecom provider Delta Fiber, German broadband provider Deutsche Glasfaser and Maltese operator Melita.

But other analysts are not convinced EQT can overcome the problems facing a Dutch telecom takeover. “We believe the probability of a takeover is low,” said Emmanuel Carlier, analyst at Kempen.

(Updated with KPN shares)

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