KPN to Raise 4 Billion Euros to Fend Off Rivals

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BERLIN -- KPN, the former Dutch telephone monopoly now partly owned by the Mexican billionaire Carlos Slim Helú, said on Tuesday that it would nearly double its financial reserves in an effort to fend off competition in the Netherlands, Germany and Belgium.

The operator, based in The Hague, said it would sell €4 billion, or $5.4 billion, in new shares as it reported a €162 million loss for the fourth quarter, compared with a €176 million profit a year earlier.

Will Draper, an analyst in London with Espirito Santo, a Portuguese investment bank, said KPN's financial distress had been partially self-inflicted.

The Dutch company, under pressure from domestic and international institutional shareholders, had paid out about €2 billion a year to shareholders through generous dividends and share buybacks since 2000, Mr. Draper said, a far greater percentage of its sales than those of its larger rivals, Deutsche Telekom and Vodafone.

KPN also spent heavily to connect more than 18 percent of Dutch households to high-speed optical fiber networks. Those payouts reduced KPN's financial maneuverability, Mr. Draper said, and the situation grew critical in December when KPN paid €1.4 billion to obtain broadcast spectrum for high-speed fourth-generation mobile services.

"KPN's big problem is that it has basically underinvested in its own business," Mr. Draper said. "Now it is paying the price."

KPN's market value before its announcement Tuesday was €4.7 billion, and the rights offering, to take place later this spring, would expand its resources by 85 percent.

Eric Hageman, the chief financial officer at KPN, said the company's policies of generous payouts to shareholders were justified but could have been curtailed sooner as the operator's profitability began to fall in 2009 and regulatory changes cut into its main sources of income, like roaming fees and mobile interconnection charges.

"It's always easier when you're on the gravy train, so to speak, and times are good, but it is difficult from a management perspective to change that," Mr. Hageman said during an interview. KPN suspended its share buyback program in January 2012 and said Tuesday that it would not pay a dividend for 2012.

The Dutch company's predicament is a test for Mr. Slim, the patriarch of the Mexican family that owns the Latin American mobile operator group América Móvil, which acquired a 28 percent stake in the operator last year. Since América Móvil acquired its stake at €8 a share, KPN's share price has fallen by more than half. The shares closed Tuesday at €3.45, down 15.9 percent.

During a conference call Tuesday with investors, Eelco Blok, the KPN chief executive, said América Móvil had not yet decided whether it would purchase new shares in the offering, which would be made to existing shareholders. América Móvil can purchase a proportionate 28 percent of the new shares sold, but could also theoretically increase its stake beyond that level by acquiring stock from other shareholders who might opt out of the stock sale.

Mr. Draper, the Espirito Santo analyst, said that KPN's financial distress would test Mr. Slim's interest in the Dutch operator. When he bought the stake last year, Mr. Slim spoke generally of a 10-year commitment to KPN.

During the same year, América Móvil bought a 23 percent stake in Telekom Austria. Mr. Slim also owns 7 percent of The New York Times Co.

"So far, he has taken a bath on KPN shares," Mr. Draper said. "So this will be a test of his engagement in the company."

Mr. Hageman, the chief financial officer, said KPN had the "strong belief" that América Móvil would approve management's request for the rights offering at a shareholders' meeting on March 19.

Frank Jansen, a spokesman at Citigate, América Móvil's public relations firm in Amsterdam, said it had no immediate comment on its plans for the stock sale.

The cash infusion is the latest defensive move by KPN, once an arm of the Dutch postal service, which remains the landline market leader but has faced rising wireless competition from rivals Vodafone and T-Mobile, a Deutsche Telekom unit, as well as from the Dutch cable television operators Ziggo and UPC, which also sell broadband and voice-over-Internet services.

In Germany, KPN's investment plans will weigh on the carrier's midterm profitability, said Thorsten Dirks, the chief executive of the KPN operator E-Plus, the fourth-largest mobile operator in Germany, with a 16 percent share of the market. In 2012, KPN had explored a potential fusion of E-Plus with the No.3 operator, O2 Germany, owned by the Spanish company Telefónica, but those talks were not productive and were ended, Mr. Dirks said in a conference call.

"This capital increase, which all companies make at some point, is intended to reduce our net debt and to allow us to further invest and give us the financial flexibility to keep pace in the Netherlands, Belgium and Germany, all markets that are currently going through radical changes," he said.

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This article originally appeared in The New York Times.


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