Spanish telecom giant,
) German unit, Telefonica Deutschland, has confirmed that it will
stick to its previous plan to acquire Royal KPN N.V.'s German
subsidiary, E-Plus. The confirmation came after
America Movil S.A.B. de C.V.
) offered $9.6 billion (€7.2 billion) for a 70% stake in Dutch
telecom giant, KPN.
In Jul 2013, KPN had agreed to sale its prized German asset to
Telefonica in two phases. This will create the largest telecom
company in Germany in terms of subscriber base. In the first
phase, Telefonica Deutschland will acquire a 100% stake in E-Plus
for $4.8 billion (€3.7 billion) in cash. KPN will get 24.9% of
the combined entity. In the second phase, the company will pay
$1.7 billion (€1.3 billion) to acquire a 7.3% stake in the
combined unit from KPN.
Telefonica Deutschland plans to raise the initial $4.8 billion
(€3.7 billion) in cash via selling shares to its existing
shareholders. This will give the company a majority 65% holding
in the combined entity. However, KPN will hold a 17.6% stake in
the combined entity post the deal.
KPN is expected to get a combined value of around $10.8
billion ($8.1 billion) via the cash and stake deal. The deal will
pose competitive threat to rival carriers,
Vodafone Group Plc.
) and Deutsche Telekom AG.
Reportedly, Deutsche Telecom and Vodafone are the biggest
operators in Germany with 37 million and 32.4 million customers,
respectively. The united entity of Telefonica Deutschland
and E-Plus will have a customer base of 43 million coupled with a
38% market share.
According to Telefonica, the combined entity will generate
$10.4 billion (€8 billion) in annual revenues and will create
cost synergies of around $6.5 billion (€5 billion). However, the
deal needs to get the shareholders' approval and most importantly
the consent of the European antitrust officials, as the merged
entity will reduce the choice for customers.
America Movil, which has a 30% ownership in KPN, initially
supported the proposed deal. Nevertheless, by bidding for the
remaining part of KPN, it is expected that America Movil will now
try to obstruct the deal. America Movil's entry into the frame
poses significant threat to Telefonica as the former could
extract a higher price for E-Plus as they are major rivals in the
Latin American market.
The decision to acquire E-plus is a welcome change for
Telefonica as it has been divesting its non-core assets to reduce
its mounting debt. However, if America Movil raises the bid price
higher, Telefonica could exit the KPN deal because of its highly
Telefonica currently carries a Zacks Rank #3 (Hold). Other
stock worth considering within the same sector is
Turkcell Iletisim Hizmetleri AS
) which currently carries a Zacks Rank #2 (Buy).
AMER MOVIL-ADR (AMX): Free Stock Analysis
TELEFONICA S.A. (TEF): Free Stock Analysis
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VODAFONE GP PLC (VOD): Free Stock Analysis
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