Carlos Slim, the world's richest man, has backed KPN's (>> KPN KON) plan to raise 4 billion euros ($5.3 billion) and will take two seats on the board as he battles to turn around a heavily loss-making investment in the Dutch telecoms group.
However, the Mexican telecoms tycoon, whose America Movil (>> America Movil SAB de CV) business owns just under 30 percent of KPN, said on Wednesday he would not launch a full takeover of an indebted group struggling with cut-throat competition and high investment costs, sending KPN's shares down over 9 percent to 11-year lows.
"The 4 billion euros they (KPN) are looking for is about the same size as their market capital. This confirms a highly dilutive capital increase," said a trader in Brussels. "The standstill agreement also removes takeover speculation."
America Movil, Latin America's biggest phone company, would have to spend about 900 million euros to maintain its almost one-third stake in KPN.
Shares in the Mexican company also tumbled as much as 2 percent to 14.17 pesos on the announcement.
America Movil has already pumped around 3 billion euros into KPN, buying shares at mostly just below 8 euros as part of a drive to expand in Europe. The Mexican group also has a stake in Telekom Austria (>> Telekom Austria AG), which is under water as well.
However, KPN's shares have slumped - trading as low as 2.871 euros on Wednesday - as it battles with high debts, stiff competition and after it paid much more than expected for a fourth-generation mobile license.
KPN, which announced earlier this month its planned to raise 4 billion euros in equity capital, said it would seek 3 billion euros via a rights issue. It will also issue hybrid securities.
A source close to the deal said KPN would need to sell around 2 billion euros of hybrids to hit its 4 billion euro target, as they are usually recognized as 50 percent equity.
KPN plans to use the proceeds to cut its net debt of around 12 billion euros, and to continue investing in its operations.
The accord will put to rest ? for a spell at least ? concern among some investors that America Movil would not support KPN as it seeks to rebuild its balance sheet as well as calm speculation about a takeover.
It may not calm speculation, however, that America Movil and other investors could one day push for broader management changes at the group, including the dismissal of embattled Chief Executive Eelco Blok.
Asked whether management changes had been discussed between America Movil and KPN, a spokesman for the Dutch company declined to comment on the content of discussions and said no changes to the board of management were included in Wednesday's agreement.
A spokesman for America Movil did not immediately respond to a request to comment on possible management changes at KPN.
KPN said America Movil had agreed to subscribe for newly issued shares to maintain its stake around the current level.
It will take two seats on KPN's eight-member supervisory board and the two firms will form joint working groups to advise KPN's board on operational and financial matters, KPN added.
The Dutch group reiterated the two could also cooperate in areas such as joint procurement, international mobile roaming and international transit with the aim of reducing costs.
"America Movil was keen to ensure it had more concrete parameters for its relationship with KPN and to make sure it has more direct information and insight into what is going on in the company," the source close to the deal said. "It is a positive signal that America Movil ... is standing behind the company."
KPN said the agreement was of an unlimited duration but could be cancelled by either party with two month's notice. KPN agreed it would not do so in the first two years, however.
The accord will put to rest - for a spell at least - concern among some investors that America Movil would not support KPN as it seeks to rebuild its balance sheet and cope with brutal competition and underinvestment in its home market.
It also puts off the idea, long seen as unlikely by credit analysts given America Movil leverage levels, that Slim would swoop in to take over all of KPN any time soon.
"Consolidating the whole company and putting all that on its balance sheet at this stage would not be viewed favorably by America Movil shareholders," the source said.
America Movil, Latin America's biggest phone company, earlier this month reported weak fourth-quarter results that widely missed analysts' expectations, in part because of exchange losses related to the company's stakes in KPN and Telecom Austria.
Theodoor Gilissen analyst Jos Versteeg said Slim, whose net worth is estimated at $72 billion by Forbes magazine, might still end up taking over KPN in the longer term.
"What Slim has done in Latin America is take a stake, invest heavily and then take over the group completely," he noted.
America Movil already has de-facto control of KPN because of a traditionally low turnout at the KPN's shareholder meetings.
KPN said Deutsche Bank (>> Deutsche Bank AG), Goldman Sachs (>> Goldman Sachs Group, Inc.) and JP Morgan (>> JPMorgan Chase & Co.) would underwrite the rights issue.
Companies generally have to pay higher interest on hybrid bonds, but credit rating agencies treat them as partially helping to improve debt ratios.
KPN shareholders will vote on the fundraising and appointing the new board members on April 10. The rights issue is expected to be completed by mid-May, the source said, while the hybrid offering could be done at any time.
($1 = 0.7487 euros)
(Additional reporting by Philip Blenkinsop in Brussels, Leila Abboud in Paris, Kylie MacLellan in London and Elinor Comlay in Mexico City; Editing by Mark Potter and Kenneth Barry)
By Robert-Jan Bartunek