Carlos Slim, the Mexican billionaire mogul who is the world’s second richest man, plans to buy out the Dutch telecommunications company Royal KPN (NASDAQOTH: KKPNY) for 7.2 billion euros ($9.6 billion). Slim is ratcheting up the battle between his own telecommunications company America Movil SAB de CV (ADR) (NYSE:AMX) and Telefonica S.A. (ADR) (NYSE:TEF) in the European stage. Will Slim’s $9.6 billion wager come to fruition for shareholders of America Movil SAB de CV (ADR) (NYSE:AMX) and Royal KPN, or is this development only to be fraught with regulatory hurdles and costly trouble? So far, Slim’s forays into Europe have only lost money on paper, but if he can successfully pull off this buyout then chances are the proposal might produce positive results.
Events Leading up to Slim’s Buyout Offer
America Movil SAB de CV (ADR) (NYSE:AMX) currently provides telecommunications services to the United States, Latin America, and the Caribbean. America Movil SAB de CV (ADR) (NYSE:AMX) and arch-rival Telefonica S.A. (ADR) (NYSE:TEF) currently control about 60% of the mobile phone market in Latin America. Carlos Slim has been seeking to expand America Movil SAB de CV (ADR) (NYSE:AMX)’s reach in Europe, as shown by large stakes Slim bought in both Royal KPN and Telekom Austria in 2012.
Slim’s current endeavor to buy out Royal KPN is complicated by the stagnant state of the European economy and an agreement Royal KPN signed with Telefonica. Royal KPN has agreed to sell both KPN’s 17.6% stake in Telefonica S.A. (ADR) (NYSE:TEF) Deutschland as well as 100% of the company’s interest in German mobile operator E-Plus to Telefonica S.A. (ADR) (NYSE:TEF)’s German operations for approximately $6.7 billion.
Why Slim Would Gain from Acquiring Royal KPN
Slim would like to obtain the rest of Royal KPN in order to better compete in the European market. The $9.6 billion deal most likely is partially hinged on the assumption that Europe’s economy is going to rebound soon or that the telecommunications industry in Europe will improve.
Should America Movil SAB de CV (ADR) (NYSE:AMX) acquire KPN, they would be in a position to also gain E-Plus from Telefonica. E-Plus has a 15% stake in the German market, and acquiring E-Plus would be a damper on Telefonica S.A. (ADR) (NYSE:TEF) and significantly boost America Movil’s presence in Europe.
However, America Movil might seek to sell E-Plus at a higher price to Telefonica S.A. (ADR) (NYSE:TEF). Andres Bolumburu, an analyst at Banco de Sabadell, explains: "...the fact that Slim hasn’t made a decision over Telefonica’s bid for E-Plus suggests that the billionaire will seek a sweetened offer from [Telefonica]." Telefonica desires E-Plus in order to compete with Vodafone and Deutsche Telekom in Germany. If Slim buys KPN, then he could ironically use KPN as leverage to obtain more euros out of Telefonica.
Regardless of what Slim or KPN does with E-Plus, it seems that the Mexican tycoon wants to expand America Movil’s reach and ratchet up competition with Telefonica.