KPN offer stokes mmO2 bid excitement

Not going Dutch, just yet

Speculation over the future of mobile operator mmO2 was rampant on Monday after Dutch telecoms company KPN made an offer for the firm.

The friendly offer, which was rebuffed on Friday when O2 said it had ceased talks with an unnamed operator, has prompted conjecture over whether the mobile arm of Royal KPN NV will now launch a hostile takeover. Numerous reports note that KPN has refused to rule out such a move, although the Financial Times cites a person close to KPN who said there was "zero chance" of a hostile bid.

KPN offered about £9.5bn, or £1.10 per share, for mmO2 in a stock and cash deal, according to The Guardian. Based on Friday's closing price in London, mmO2 has a market capitalisation of about £8bn. KPN, meanwhile, has recently received a fresh influx of cash after an unexpected tax settlement with Dutch authorities helped bring in €1.08bn in 2003 net profits as well as other benefits.

If combined, KPN Mobile and mmO2, the former wireless arm of British Telecom, would create a company with some 35 million subscribers in Europe, with operations in Germany, Belgium, the Netherlands, Ireland and the UK. Currently, KPN Mobile has around 15 million customers after adding 500,000 in 2003, while mmO2 has just over 20 million. The greatest cost-savings and synergies would likely come in Germany, where KPN-controlled E-Plus and O2 Germany are the number four and number three operators respectively.

There has been widespread speculation for years that KPN Mobile and mmO2 would merge, as both are now deemed too small to survive in a market dominated by the likes of Vodafone, Orange and T-Mobile, all industry giants. Amidst the guesswork, the names of other operators - Telefonica Moviles and Telecom Italia - have also been dropped several times over the years as possible suitors to mmO2, and these names have arisen again.

Analysts, though positive on the possible outcome of a deal at the right price, have not been overly optimistic that such a thing will happen. The value of mmO2, particularly O2 Germany, has long been a sticking point in earlier negotiations, and it has been suggested that the impasse will be no easier to resolve now than in years gone by.

In related news on Monday, KPN, the telecoms company that owns 98 per cent of KPN Mobile (with NTT DoCoMo owning two per cent), posted its sixth straight quarterly profit thanks to tax gains and cost cuts. The company said that net income in the last three months of 2003 rose to €1.639bn, well ahead of most estimates and up from €7m in the same period a year earlier. Fourth quarter operating revenue was €3.088bn compared with €3.136 bn in the same period a year earlier.

For the full 2003 year, KPN reported a profit after taxes of €2.731bn compared to a loss after taxes of €9.542m in 2002. Operating revenues for the full year rose to €12.209bn compared with €12.170 bn a year earlier.

"We have achieved most of the ambitious goals that we had set ourselves for 2003. Despite the competitive market environment, we have managed to deliver cash flow ahead of market expectations and we are now in a position to reward our shareholders by resuming dividend payments," said CEO Ad Scheepbouwer.

© ENN

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