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KPN beats France Telecom to E-Plus Mobilfunk

Another episode in the everyday tale of Euro wireless wars...

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KPN Royal Dutch Telecom announced this morning that for 18.7 billion Euro it had acquired 77.5 per cent of E-Plus Mobilfunk, now Germany's largest mobile telephone operator, while BellSouth, one of the founding shareholders of E-Plus, keeps the remaining 22.5 per cent. This is a considerable blow to France Telecom, which had made a bid for E-Plus following the breakdown of its relationship with Deutsche Telekom over the latter's bid for Telecom Italia. France Telecom is currently in litigation with DT over this. DT has reciprocated by moving into the French telecom market. In October, France Telecom had bought from Vodafone its 17 per cent $1.86 billion stake in E-Plus, a competitor to Deutsche Telekom. E-Plus is something of a prize since German mobile penetration is a low 23 per cent, compared with the European average of 33 per cent, giving a considerable potential upside. KPN Mobiel is now third in Europe with 8 million customers, and is spending the cash pile it obtained when it sold is stake in Telecom Eireann. Some 40 per cent of KPN's revenue is from the data sector, and it expects this to increase to 60 per cent following the acquisition. The development of KPN Mobiel is seen as a defensive move on KPN's part to make a takeover more difficult. KPN is financing the deal with a bridging loan through a syndicate of banks, and will be re-finance it with an IPO for KPN Mobiel. There is a complex deal between KPN and BellSouth, which has a right of first refusal to buy 100 per cent of E-Plus. BellSouth will keep its E-Plus holding for 18 months, and then for the following 30 months there are three possibilities: convert the stake to around 19 per cent of KPN shares; convert the stake to KPN Mobiel shares worth an estimated EUR 6.4 billion; or to do neither and remain a shareholder. BellSouth sees the advantage of this as a cash investment of $150 million in E-Plus becoming a $7.8 billion asset (its revenues are around $25 billion) which is not reflected in the stock price, according to Duane Ackerman, CEO of BellSouth. The transaction should close early next year, and regulatory problems are not anticipated. ®

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