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Not only is the cat among the pigeons, it is now trying to eat one of the birds. Carlos Slim's America Movil has bid for the 70 per cent of Dutch telecoms operator KPN that it does not own, leaving KPN shareholders with two choices.
The first is to accept the €2.40 ($3.29) per share offer. This has the advantage of getting them out of a messy situation. No more need to second-guess Mr. Slim, KPN, Telefonica and an array of European regulators. No more need to watch as KPN's earnings decline – net profits for 2013 are expected to be less than half of what they were in 2008. The problem is a lousy price. Yes, the offer is a 20 per cent premium to undisturbed prices. But it gives the Dutch company an enterprise value that is just 5 times its forecast earnings before interest, tax, depreciation and amortisation. The European telecoms sector average is 6 times. And a recently agreed deal values KPN's German unit at about 9 times.
The alternative is to stick around as a minority shareholder to see how that German deal plays out. Mr. Slim's offer for KPN is merely the latest move in the consolidation of European telecoms. At stake is the proposed sale of KPN's German subsidiary to Telefonica Deutschland, uniting the number 3 and 4 players. KPN would get €5-billion and 18 per cent of the enlarged company. KPN's shareholders are due to vote on the German deal in the next few weeks but it is not clear if America Movil will support it. If the German deal collapses and America Movil takes control of KPN, Telefonica Deutschland would have a more daunting competitor. To avoid that, it might sweeten the terms.
Or it might not. The German deal is undoubtedly a good one for KPN, whatever reservations Mr. Slim may have about the price. It would consolidate the German market and reduce the Dutch company's debt. If it fails, KPN is left in the same strategic bind in Germany (small player in an competitive market) as it was before. Yes, Mr. Slim might have the firepower to shake things up, but when and how to do so would be entirely down to him.
Trying to second-guess a cat is never a great move for a pigeon. Better to fly off.