Odds improving on latest $15 billion KPN takeover bid

KPN has been the subject of a number of takeover bids over the past few years, so Thursday’s report that there is yet another offer on the table, and a sizeable one at that, can come as little surprise.

Given that the Netherlands incumbent has to date fended off all of those offers – some confirmed, others not – it is tempting to scroll past the Wall Street Journal’s claim that a couple of private equity big names are prepared to stump up more than $15 billion for the telco. If the other bids it has received have come to nothing, why should this one be any different?

Well, for starters, one of the PE firms in question is Sweden’s EQT, which, if various reports in the financial press are correct, is no stranger to KPN. In October Bloomberg said EQT was exploring a takeover of the telco, while a month later Reuters cited unnamed sources as saying that preliminary talks were underway, with a resulting deal expected to value the operator at around the $13 billion mark.

Nothing came of those reports…until now. EQT has apparently brought in a partner in the form of US-based Stonepeak Infrastructure Partners, and the proposed valuation of the telco has risen by a couple of billion dollars. The figured being bandied about by the WSJ represents a premium on the operator’s share price, but not a huge one, incidentally; the paper’s sources said the bid could come in at north of €3 per share (or US$3.56), while the telco closed at €2.88 on Wednesday. It peaked at €2.96 after the news broke on Thursday, but fell slightly later in the day.

The repeated linking of EQT is not so much a case of ‘no smoke without fire’ as it is a story of tenacity: it appears the firm is particularly keen to get its hands on KPN and as such is exploring all options.

The attraction for EQT is clear: it’s about investing in infrastructure. There have been myriad examples of investment groups picking up infrastructure assets – towers, data centres, fibre networks and so forth – over the past few years, and this rumoured deal is likely just a continuation of that trend, the difference being that EQT/Stonepeak are looking at picking up the whole company rather than cherry-picking assets.

KPN recently set up a joint venture with pension fund APG to share the financial burden of rolling out fibre to over 900,000 premises in underserved areas of the Netherlands, having already pledged to deploy fibre to 2.5 million homes under its own steam. And there was further evidence that the fibre market in the Netherlands is hotting up earlier this week when KKR and Deutsche Telekom-backed DTCP presented Open Dutch Fiber, a wholesaler that will spend €700 million rolling out FTTH to 1 million households over five years.

Meanwhile, KPN’s financial figures remain uninspiring at best; a private equity-backed turnaround could be just the ticket.

But it is questionable whether KPN is for sale. Chief executive Joost Farwerck has batted away sale talk on a number of occasions, insisting that the telco has its own strategy to pursue. According to the newswires, he indicated on KPN’s Q3 results call last year that the telco would listen to any interesting proposals, but there is no real indication that attracting PE money is part of the company’s roadmap.

Furthermore, there are obstacles to any takeover. As Reuters points out, recently-enacted national security legislation in the Netherlands would allow the government to block any takeover bid, should it choose to do so.

Meanwhile KPN has previously shown that it has the ability to stop an unwanted takeover attempt. A foundation set up to protect its interests put the mockers on a bid from America Movil back in 2013 by exercising a call option to temporarily boost its own shareholding.

But overtures from EQT and Stonepeak are a very different proposition to a takeover bid from an expansionist fellow telco. The PE firms might not get their deal across the line – assuming the WSJ report is correct, of course  – but it is certainly not out of the question.