The billionaire Carlos Slim Helú can pay more for the Dutch telecommunications firm KPN. Unless the two sides agree a friendly deal, a poison pill will probably stop Mr. Slim’s América Móvil from buying the 70.2 percent of KPN that it does not already own.
Yet there are strategic and financial reasons for Mr. Slim to keep the deal alive. And because his current offer looks cheap, a sweetened bid could still stack up.
At 2.40 euros a share, Mr. Slim’s proposal is worth at most 7.2 billion euros. It represents a skinny 20 percent premium over KPN’s value before the offer was announced, and equates to an enterprise value of about 4.6 times 2014 earnings before interest, taxes, depreciation and amortization, Breakingviews calculations show.
That looks meager. Without any takeover premium, European peers trade on about 4.8 times forward enterprise value-to-Ebitda ratios, according to Datastream. Worse, the offer is unchanged since KPN, at América Móvil’s prodding, won better terms for the sale of its German unit. That added roughly 11 cents a share to KPN’s value.
So, there should be room for maneuvering, even if América Móvil is insisting it will not budge. A bid at 2.70 euros a share would lift the premium to 35 percent, and the Ebitda multiple to about 5 times, without hurting América Móvil’s credit ratings.
What’s more, if the regulatory, technological and economic challenges hammering European telecommunications abate, valuation multiples and earnings should recover across the sector. And while there won’t be big synergies, América Móvil presumably believes that it can run KPN better than the current lot, unlocking extra value.
A successful deal has wider significance for Mr. Slim, too. He has already staked 4 billion euros on KPN, but gained limited influence in return, as the debate about the sale price of the German unit showed. He is also eager to diversify away from Mexico, where the government is taking on oligopolies. Doubling down both deepens his European presence and protects an important existing investment.
These broader strategic considerations are harder to value. But suppose they are worth 500 million euros to Mr. Slim. That could justify a further bump towards 2.85 euros a share. If Mr. Slim really is serious about his proposal, he can afford to show it.
Quentin Webb is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
