Carlos Slim, the world's richest man, has backed KPN's plan to raise €4-billion ($5.3-billion U.S.) and will take two seats on the board as he battles to turn around a heavily loss-making investment in the Dutch telecoms group.
However the Mexican telecoms tycoon, whose America Movil business owns just under 30 per cent of KPN, said on Wednesday he would not launch a full takeover of an indebted group struggling with cut-throat competition and high investment costs, sending KPN's shares down over 8 per cent to 11-year lows.
"The €4-billion they (KPN) are looking for is about the same size as their market capital. This confirms a highly dilutive capital increase," said a trader in Brussels. "The standstill agreement also removes takeover speculation."
America Movil has already pumped around €3-billion into KPN, buying shares at mostly just below 8 euros as part of a drive to expand in Europe. The Mexican group also has a stake in Telekom Austria, which is under water as well.
However, KPN's shares have slumped – trading as low as 2.902 euros on Wednesday – as it battles with high debts, stiff competition and after it paid much more than expected for a fourth-generation mobile licence.
KPN, which announced earlier in February it planned to raise €4-billion, said it would seek 3-billion-euros via a rights issue. It will also issue hybrid capital instruments, which are expected to be partly recognised as equity.
The proceeds will be used to cut its net debt of around €12-billion, and to continue investing in its operations.
KPN said America Movil had agreed to subscribe for newly issued shares to maintain its stake around the current level.
It will take two seats on KPN's eight-member supervisory board and the two firms will form joint working groups to advise KPN's board on operational and financial matters, KPN added.
The Dutch group reiterated the two could also co-operate in areas such as joint procurement, international mobile roaming and international transit with the aim of reducing costs.
KPN said the agreement with America Movil was of an unlimited duration but could be cancelled by either party with two month's notice. KPN agreed it would not do so in the first two years, however.
Theodoor Gilissen analyst Jos Versteeg said Slim, whose net worth is estimated at $72-billion by Forbes magazine, might still end up taking over KPN.
"What Slim has done in Latin America, is take a stake, invest heavily and then take over the group completely," he noted.
America Movil already has de-facto control of KPN because of a traditionally low turnout at the KPN's shareholder meetings.
KPN said Deutsche Bank, Goldman Sachs and JP Morgan would underwrite the rights issue.
Companies generally have to pay higher interest on hybrid bonds, but credit rating agencies treat them as partially helping to improve debt ratios.
KPN shareholders will vote on the fundraising and appointing the new board members on April 10.