KPN weighs 'poison pill' strategy to kill Carlos Slim bid

KPN may implement a so-called "poison pill" defence to wreck the bid by Mexican billionaire Carlos Slim for up to 27.7 per cent of the Dutch telecoms operator.

However, this move, which is seen as a tactic to provide KPN with more time to agree a merger of its E-Plus mobile unit with Telefónica's O2 Germany, could backfire by upsetting KPN's existing shareholders and ultimately fail if challenged by Slim in the European courts, according to Reuters. The strategy would involve granting preference stock to KPN's "Stichting," or foundation, which could then outvote other shareholders.

"Inherent in the [poison pill] mechanism is that it is a rather large gun. You have to be careful in how you use it," said a Dutch lawyer who asked not to be named because his firm was advising a party in the KPN-América Móvil battle.

Robin Bienenstock, analyst at Bernstein Research, said KPN could use the extra time caused by adopting this approach to complete a deal with Telefónica to merge their German mobile units.

"KPN will only trigger the poison pill if they have a material offer from Telefónica for [its] German business," Bienenstock told Reuters. "But doing so would likely introduce a lot of uncertainty around the KPN share price."

However, KPN CEO Eelco Blok might push ahead with this move given that the company's share price has remained below the €8 per share offer made by Slim's América Móvil last month. América Móvil  has already accumulated an 8.5 per cent holding in KPN, albeit that Blok and CFO Eric Hageman have been visiting investors to ask them not to tender their shares since they think the offer undervalues the company, according to Bloomberg.

Slim's bid for KPN, which closes on June 27, has prompted the Dutch telco to say it will reply to the offer in a position statement later this week.

Will Draper, an analyst at Espirito Santo in London, told Bloomberg that KPN's review of its E-Plus unit was "reactionary and completely driven by the approach from Slim. KPN is only doing it because they are being forced to do it--they could have done it for the last eight years."

Javier Borrachero, an analyst at Kepler Capital Markets, echoed this viewpoint: "The problem is that time is playing against management. The best way to try to convince shareholders that €8 is not the best offer is to do something in Germany. But it seems too late for that."

Analysts are concerned about KPN's future, having seen the company's share price fall 35 per cent since Blok took control in April 2011.

"What I don't understand is why they haven't decided to welcome América Móvil  as a strategic shareholder," Jos Versteeg, an analyst at Theodoor Gilissen, told Bloomberg. "There is no one who can explain to me when growth will return at KPN. The problem with Blok is that he hasn't come up with a good plan since he took the helm."

For more:
- see this Reuters article
- see this Bloomberg article

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