Private equity firms well placed to buy Base

KPN today announced it is conducting a comprehensive review of the strategic options in respect of its mobile operations in Belgium. With this short statement, KPN revealed an interest in selling Base, an outperforming unit within the group’s operations portfolio. News reports say that Base could fetch up to €1.8 billion in a potential sale. This was enough to send KPN Group’s shares skyrocketing in early trading just over a week before the release of first quarter 2012 financial results.
KPN has been facing problems in its domestic Dutch market for several quarters now, a trend that is now affecting several Europe-headquartered groups. KPN, in particular, saw the phenomenon of revenues erosion due to the substitution of traditional voice and SMS services by OTT platforms of the likes of Skype, Viber and WhatsApp. Should a sale…go ahead, KPN could use the proceeds to strengthen its financial position, finance the deployment of next-generation networks and enter the upcoming Dutch spectrum auction from a more favorable position. With these objectives in mind, KPN agreed to sell its French mobile unit KPN France to Bouygues Telecom in December 2011, while a sale of its Spanish operations is currently considered.
Belgium’s other two mobile network operators, Belgacom and Mobistar, would most certainly like to treat this as an opportunity to further consolidate their position in the Belgian market. But there is no getting around the fact that Belgium is a tripartite mobile market and any interest from the other two players would most certainly be blocked by anti-trust laws.
Without doubt, private equity firms have money to spend and that places them in favorable position for the purchase of Base. This would not be the first event of this kind: in December 2011, Apax Partners announced it reached agreement to purchase Switzerland’s mobile operator, Orange Switzerland, for 2 billion Swiss francs (€1.6 billion) while, just over a year earlier, CVC Capital Partners reached a similar agreement for the purchase of TDC’s Sunrise Communications for 3.3 billion francs.
What are the similarities between the Orange Switzerland sale and the Belgian case? Both Orange Switzerland and Base are third-in-size mobile players in non-core, small-in-size European mobile markets. Additionally, both markets are subjected to weak competitive forces unlike those recently encountered in the French mobile market that resulted from the entry of Free Mobile in the mobile stage.
If we were to listen to those voices saying that involvement of private equity firms results in underestimated purchase values, it would be in KPN’s interest to consider a potential bid from Liberty Global’s Belgian cable unit, Telenet. Telenet reported its MVNO operation had won it 238,700 mobile subscribers at end-2011. However, Telenet last year acquired its own 3G spectrum in partnership with Walloon cable operator Tecteo SCRL. Although acquiring Base would help it avoid the conundrum of slow market share growth that other 3G late entrants experienced in their respective markets - e.g. Yoigo in Spain, 3 in Italy and the UK -, there are doubts whether Liberty Global would be interested in shifting from its current focus on consolidating its presence in the German cable market.
Panos Loukos is a senior analyst with Informa Telecoms & Media