Reuters Breakingviews delivers agenda-setting financial insight. Its global correspondents react to stories as they develop, delivering sharp and provocative commentary on big financial news as it breaks.
It's bad enough for the world's richest man to elbow his way to the top of your shareholder register. Even worse when he then holds his tongue when you need a rescue rights issue. Happily for KPN, Carlos Slim has belatedly come round. Slim is already badly out of the money on the ailing Dutch telephone group – but coughing up another €900-million ($1.2-billion) is his least-worst option.
When KPN unveiled the planned capital raising on Feb. 5, the group's biggest shareholder was noticeably silent. That was very awkward, since Slim's America Movil group, or AMX , could plausibly block the increase on its own.
A new pact has smoothed things over. KPN wants to raise €3-billion in equity, and the equivalent of €1-billion more in hybrid instruments. Slim bought 27.7 per cent of KPN in June for just under €3.05-billion, and recently increased the stake to 29.8 per cent, AMX's latest quarterly results show. So maintaining that stake will cost about €900-million.
In return for Slim's backing, he is taking more control. The Mexicans will have two seats on KPN's eight-strong supervisory board. They get no management board seats, but will also give guidance on business plans and budgets. In return, Slim vows not to buy more of KPN, and will help it reap economies of scale through moves like joint purchasing with his other operations.
Slim might not be happy about putting in more money. KPN's home market is getting increasingly competitive, and its low-cost German arm is struggling. But AMX's alternatives were grim.
A full bid for KPN was possible. But consolidating the group would dramatically raise AMX's leverage, and make the company a far less straightforward bet on Latin America. Alternatively, allowing the issue but not participating would have meant hefty dilution, given KPN's current market capitalisation is only €4.6-billion. And a veto would have left a crippled KPN with an uncomfortably stretched balance sheet and little ability to invest.
It looks like Slim has made the best of a bad deal.