Monday, July 29, 2013

Add America Movil to Catalysts for Europe Consolidation

Telefonica’s move to buy KPN-owned E-Plus and vault itself up into the top ranks of the German mobile market will face several challenges, including regulatory approval and possibly a challenge from KPN investor America Movil, which owns 29.8 percent of KPN, and might not want a major rival to acquire a stronger position in the German market America Movil itself has wanted.

America Movil had invested in KPN in the first place to get a foothold in the German market. If E-Plus is sold, America Movil will have to rethink its ability to enter the German market, and possibly its investment in KPN as well. One might also argue America Movil could consider its own rival bid for E-Plus, with a partner.

Up to this point, America Movil had pledged not to acquire more than 30 percent of KPN. But America Movil now has said it will not abide by that agreement, clearing the way for either a larger investment in KPN, a bid to acquire all of KPN or even a sale of its stake, if America Movil is unable to dissuade KPN from selling its German assets.

It is not clear whether America Movil members of KPN’s board will vote to support the E-Plus sale.  "We will evaluate the terms and conditions of the transaction," Daniel Hajj told analysts in a conference call to discuss America Movil's second-quarter results.

Should América Móvil want to block the sale of E-Plus in Germany to Telefónica, acquiring a majority in KPN may be its only option, though.

America Movil sees Telefonica as a primary competitor in American Movil’s core Latin American markets, and America Movil also has an investment of 29.8 percent in KPN, which owns E-Plus and wants to sell that asset to Telefonica.

Also, Telefonica had interest in buying KPN, or making an investment, on its own, prior to the America Movil move.

America Movil originally invested in KPN for the larger reason of diversifying outside Latin America. It might now see a tactical reason for trying to break up the Telefonica move by attempting to convince KPN to reverse the decision to sell the E-Plus stake.

No matter how the proposed acquisition of E-Plus is finally resolved, the move is the tip of the iceberg for further consolidation in the European mobile and broader telecom market.

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