Dutch telco KPN’s largest shareholder America Movil (AMX) has agreed to support its planned €4bn capital increase provided it can designate two people to be appointed to the supervisory board.
KPN also made adjustments to the capital increase: Under…
Dutch telco KPN’s largest shareholder America Movil (AMX) has agreed to support its planned €4bn capital increase provided it can designate two people to be appointed to the supervisory board.
KPN also made adjustments to the capital increase: Under the adjusted plans, which have AMX support, the rights issue will be limited to €3bn, and the remaining amount will be raised by issuing hybrid capital instruments.
The Mexican telco will subscribe for the newly-issued ordinary shares pro rata to its current 27.7% shareholding.
The Amsterdam-based telco plans to use the proceeds of the capital increase to reduce net debt and invest in its operations.
Earlier this month, KPN announced plans to issue a €4bn rights issue, but noted this was subject to shareholder approval and that alternatives might be considered. The company’s share capital dropped dramatically on the day of the announcement and doubts soon began to mount over whether shareholders would support the financing plans.
AMX gains more influence over KPN
In its statement today, KPN said it has also signed an agreement with its Mexico-based shareholder setting out terms of their long-term relationship, which is effective from today and remains in place indefinitely.
The relationship agreement includes numerous provisions, including AMX’s entitlement to designate two people for appointment to the supervisory board.
The parties have also agreed to set up “working groups” consisting of senior representatives from both sides to advise KPN’s management board on operational and financial matters, including the preparation of annual business plans and budgets.
The telcos will also “continue to investigate potential areas of business cooperation, such as joint procurement, international mobile roaming and international transit with the aim to realise mutually-beneficial cost savings”.
AMX shareholding will stay below 30%
However, AMX has agreed to a standstill, saying it will not increase its shareholding to 30% or more of the voting rights as long as the relationship agreement remains in place. In doing so, it removes any bid premium. AMX has the right to end the standstill immediately in the case of an announcement of an offer for any outstanding share capital of KPN or its subsidiaries.
Parties must give two months notice if they wish to terminate the relationship agreement, however KPN has agreed not to end it during the first two years.
KPN CEO Eelco Blok said AMX’s support marks “a major step towards the successful execution of our capital raise”.
“I am pleased that important progress has been made towards aligning KPN’s financial position with its strategy and that KPN will have the benefit of a strong relationship with a global leader in the telecom sector going forward.”
In an investor note, Sanford C Bernstein analysts said they think KPN will need to discount the rights issue by about 35% to raise the target €3bn, based on its closing price of €3.23 on 19 February. Assuming the extra €1bn is raised via a hybrid bond, with 50% recognised as equity, the analysts estimate KPN’s net debt/EBITDA ratio will fall to 2.17x by the end of the year, rise to 2.5x by the end of 2014 and stabilise at about 2.4x in 2015 and 2016.
Ultimately, however, Bernstein analysts said AMX has lost about €1.7bn on its approximate €3.1bn investment in KPN.
“We are deeply pessimistic about potential long-term value creation at KPN,” they said, adding that AMX’s commitment to further investment in the company may say more about capital allocation opportunities in Latin America than value-creation potential in KPN.
KPN reported total revenues of €3.274bn for the fourth quarter, down 3% year-on-year. Revenues for the full year stood at €12.708bn, down 3.5% on the 2011 result. EBITDA for 2012 was down 12% to €4.528bn, with an EBITDA margin of 35.6%.
