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KPN “Poison Pill’s” Slim’s Takeover Bid

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KPN “Poison Pill’s” Slim’s Takeover Bid

“The soccer rules in Mexico and Netherlands are the same, but taking over a large company is not soccer. We may have different rules for this here than in Mexico,” said Jacques Schraven, who heads the foundation.

21st October 2013

Mexican Billionaire Carlos Slim’s effort to take over Dutch Telecom Company, Royal KPN NV, was foiled by the KPN foundation, set up to safe guard the company’s interests. The foundation moved to block Carlos Slim’s proposed 7.2 billion – Euros ($ 9.52 billion) offer for the Dutch telecoms group, ending his ambitions of extending his business interests in Europe. Earlier in August, the Mexican billionaire had offered to acquire 70 percent of KPN for 2.40 Euros per share, or $ 9.5 billion through his flagship company, America Movil. Slim’s America Movil already holds 30 percent of KPN, but the surprise move by the foundation to thwart his efforts underlines the difficulty the tycoon faces in extending his telecom empire outside Latin America.

Hostile Takeover?

KPN foundation was set up to safe guard key national infrastructure when the former state monopoly was being privatized, the foundation said it would exercise a right to prevent – what it termed a hostile takeover bid by America Movil- by issuing new preference shares with voting rights with 49.9 percent of the total shares, to protect other shareholder’s position. “The soccer rules in Mexico and Netherlands are the same, but taking over a large company is not soccer. We may have different rules for this here than in Mexico,” said Jacques Schraven, who heads the foundation.

Poison pill- The Dutch Version

The company managed to dodge on what it sees as a takeover-on-the- cheap from one of the world’s richest men. The hostile approach of America Movil was foiled by the company by a strategy known as “poison pill” which attempts to thwart hostile takeovers.  The companies grant these foundations a call-option to buy preference shares which, if activated, will seize control over the company for a limited period of time. In the 1980’ and 1990’s many Dutch firms used such defences to protect themselves against hostile takeovers or activist inventors. The defense is not used frequently, but experts say it is a measure of last resort that deter investors in ordinary shares and only buys time to look for alternative strategic options.

“The foundation has intervened in this way in order to safe guard the interests of KPN and its stakeholders, including share holders, employees, trade unions, customers and Dutch society more generally. ” it said in a statement. The foundation argued these interests were at risk as America Movil had not consulted KPN before announcing its intention to make a takeover offer.

With a poison pill, the target company attempts to make its stock less attractive to the potential acquirer. In this strategy the company may offer a preferred stock option to its share holders that give special dividends or payments to their holders, the stock option is opened to the share holders when there is threat of a takeover, the stock is worthless and is used to scare away the bidder who is attempting to take over the company. 

Talks will Resume- KPN Chief

KPN chief executive Eelco Blok said the situation was not yet cut-and-dried, but did not reveal an asking price which could be considered acceptable by KPN for the takeover bid. America Movil has not shown any willingness to improve its earlier offer of 2.40 Euros per share, despite several recent developments including KPN’s agreement to sell its German unit E-Plus to Telefonica and the acquisition of shares by the foundation. The shareholder foundation which foiled the takeover bid said that it had “never aimed to block the deal, but to get the two parties to the negotiating table to come to a merger protocol in a suitable way”.

Hard Pill to Swallow

“It is the first time we have seen Mr.Slim being squeezed” said a telecom analyst; Mr.Slim has conceded defeat in the 7.2 billion Euros offer ($ 9.8 billion) for the 70 percent stake he didn’t own in KPN. The Financial times reported that this move could signal an attempt by Mr.Slim to back away from Europe to focus on Brazil, where the sector could witness significant changes triggered by Telecom Italia’s mooted sale of its Brazilian unit.

America Movil, whose market dominance is presently facing stiff challenges from regulators in Mexico and Colombia had offered 2.40 Euros a share for KPN, which has been trading around 2.30 since the offer, were down 8.8 percent to 2.22 Euros, well below the offer promised by Slim’s America Movil.

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