Telefonica gets America Movil nod after raising offer for Germany’s E-Plus to $11.5 bn

Spanish telecom giant Telefonica SA today raised its bid for KPN's German unit E-Plus to €8.55 billion ($11.5 billion), a sweetened offer that has been agreed by KPN's largest investor America Movil.

Late last month, Telefonica Deutschland, a subsidiary of Telefonica, had offered to buy E-Plus for €5 billion ($6.5 billion) in cash and a 17.6-per cent stake in the merged company. (See: Telefonica to acquire KPN's German unit E-Plus in €5-bn deal)

The deal was put into doubt when America Movil, run by Mexican billionaire Carlos Slim, which owns almost 30 per cent of KPN, said that it was planning to buy the rest of the Netherlands-based KPN. (See: America Movil plans acquisition of Royal KPN NV for € 7.2 bn)

America Movil yesterday said that it will back Telefonica's revised offer for E-Plus but would go ahead with its plan to buy the rest of KPN.

The financial part of the deal will be completed in two stages. In the first stage, Frankfurt Stock Exchange-listed Telefonica Deutschland will buy 100 per cent of E-Plus from KPN via a €3.7 billion rights issue plus a 24.9 per cent stake of the resulting company.

In the rights issue Telefónica will subscribe €2.84 billion, in proportion to its current stake in the company of 76.8 per cent.

In the second stage, once E-Plus is integrated in Telefónica Deutschland's capital, Telefónica will buy a 4.4 per cent stake of the combined entity from KPN for €1.3 billion.

Telefónica will finally hold a 62.1-per cent stake in the new company, while KPN will hold 20.5 per cent and the remaining 17.4 per cent will be free float.

Included as part of the price, Telefónica has the option to acquire an additional stake of up to 2.9 per cent of Telefónica Deutschland to take its total holding to 65 per cent.

The total cash payment for Telefónica will be €4.14 billion, excluding the exercise of the option.

Both companies expect the transaction to generate synergies and revenue additions of between €5 billion and €5.5 billion through combined distribution, customer service and network services, after deducting for ''integration costs.''

Telefonica and KPN had come close to a deal last year, but talks on merging O2 with KPN's E-Plus fell apart because of differences in valuation.

The transaction would see Telefonica Deutschland's O2 brand merge with E-Plus to become the new leader in the German mobile market with 43 million mobile customers, a 38 per cent market share, and combined revenues of €8.6 billion.

Telefónica said the transaction comes closer to its July announced objectives of becoming Europe's second largest operator and taking a leading position in the largest and one of the most dynamic mobile markets in Europe.

The company will also become the leading operator in terms of number of accesses, network quality and distribution network in three of its main markets - Germany, Brazil and Spain.

Munich-based Telefonica Deutschland is the fourth-largest mobile operator providing mobile telecom and mobile data services based on the GPRS, UMTS and LTE technologies through its brand O2.

As of 31 March 2013, it had 25.4 million customers, while current market leaders, T-Mobile has 38 million subscribers and Vodafone 37 million.

The deal may not add more debt to Madrid-based Telefonica, which in recent years has been selling assets with the goal of bringing its net debt below €47 billion in 2013.

Since 2011, it sold its Central American assets to Guatemala's CMI for $500 million, disposed of its Atento call centre to US private equity firm Bain Capital for $1.3 billion, its stake in China Unicom for $1.4 billion, its UK broadband and fixed telephony business to BSkyB for $270 million, and last month agreed to sell its O2 Irish business to Hutchison Whampoa Ltd's wireless communication unit called Three, for $1 billion.

As a result of the several divestures, the company has reduced net debt by approximately €10 billion since June 2012, including the recently announced disinvestments.

The transaction has to be approved by German and European regulators, who are expected to scrutinise the deal minutely.

Telefónica Deutschland will pay €100 million as break-up fee in case the regulators do not approve the deal.