Rumour Mill: KPN's Belgian arm moves closer to auction, is E-Plus next?

KPN have hired JPMorgan Chase to auction its Belgian unit BASE, according to a report from Dow Jones Newswires, which cited an unnamed source close to the situation.

While KPN denies that any decision has been made regarding BASE, and that it is only considering a "strategic review" of its operations in Belgium, speculation has grown that private equity firms have already taken a closer look at BASE, followed by suggestions that France's Xavier Niel and Egypt's Naguib Sawiris could become involved to augment their European businesses.

But as the likelihood of an auction builds, the need for KPN to use the sale proceeds to bolster its position in the Netherlands has led to renewed speculation that KPN will then offer its more valuable E-Plus operation in Germany for auction. Unnamed sources familair with the situation told Reuters that while KPN wants around €1.8 billion, E-Plus is valued at around €6 billion.

However, any sale of BASE is unlikely to attract high valuations, according to Reuters, given that the company is already run in a cost-effective manner making it less attractive to private equity firms. "Since BASE has been run as a low-cost operator it will be very difficult for private equity to create value," a source told Reuters.

It has also been said that BASE is already providing higher margin than achieved elsewhere in Europe, but would need between €30 million and €40 million to upgrade the network to compete with larger rivals Belgacom and Mobistar, which is majority-owned by France Telecom.

Any valuation of BASE might be jeopardised by Mobistar reporting a heavier-than-expected fall in first-quarter earnings, blaming regulation, higher wage costs and tougher competition for the reason. The company said that core profit (EBITDA) fell 9.7 per cent to €113 million, below the €120 million forecast in a Reuters poll of seven analysts. Net profit was also lower than expected at €38.2 million versus a consensus of €47.4 million.

The pressure on KPN to sell comes from a growing need to reduce debt and protect dividends, as is the case with Deutsche Telekom, Telefonica, and France Telecom.

"All these companies will have to retrench in order to deal with their debt burden and their need to invest in networks," Robin Beinenstock, analyst at Bernstein Research, told Reuters. "KPN probably has to sell something to be able to bid in domestic spectrum auctions this October and avoid a further credit rating downgrade."

For more:
- see this Dow Jones Newswires article
- see this Reuters article
- see this separate Reuters article

Related Articles:
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Will Telefónica and KPN merge their German mobile units?
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