AMSTERDAM (Reuters) - America Movil (AMXL.MX), the telecoms group controlled by Mexican tycoon Carlos Slim, has offered to buy a stake worth up to 3.2 billion euros ($4.2 billion) in Netherlands-based KPN NV (KPN.AS), seeing it as a base for potential expansion in Europe.
America Movil, which is seeking up to 28 percent of KPN, sees the move as a long-term investment that would give it a presence in Europe at a time when the Mexican group has run out of opportunities to expand at home, its chief financial officer said on Tuesday.
KPN shares surged more than 20 percent to their highest since early April, bouncing from a seven-year low set earlier this month. KPN welcomed the offer, saying it was "moderately positive" and showed the undervaluation of its shares.
America Movil is the biggest mobile operator in Latin America and a major cash cow for Slim, ranked by Forbes magazine as the world's richest man, who built his empire by purchasing troubled companies and turning them around.
"America Movil is a long-term investor, we think if the company (KPN) executes (its strategy) well, it will perform well," Carlos Garcia Moreno, America Movil CFO, told journalists, adding there was scope to cooperate in areas like roaming, content, marketing and procurement.
Moreno said it was too early to say whether America Movil would do any other deals in Europe, but suggested KPN would allow it to get a closer look at the European markets.
"KPN is the target for our first investment. Europe is facing some times which are economically challenging. We have a long-term investment horizon. We've taken our time. This one seems to make a lot of sense," Moreno told reporters.
Moreno said the Mexican company had few opportunities to expand in Latin America, while Europe appeared attractive because of a similar cultural identity.
Some analysts said the approach could be a prelude to a full takeover offer.
"We believe the 28 percent stake could be a first step to try to gain full control of KPN," SNS Securities said in a research note. "Buying an incumbent operator is politically not without risk, which may explain the cautious approach of first acquiring a 28 percent stake."
One investment banker involved in the telecom sector said Slim had been looking to invest in Europe for several years.
"What they achieved today really matches their strategy, as they always wanted to start with a moderate investment and see what happens," the banker said.
"It would make no sense for Slim to make a full bid for KPN right now. Instead, it is very shrewd from a non-European company to start with a minority stake and increment it over time ... From Slim's perspective, the stock is cheap and it's a good asset."
Shares of KPN, which traces its origins back to the Dutch government's construction of telegraph lines in 1852, traded up 20.1 percent at 7.781 euros by 1001 GMT.
KPN, the largest telecoms provider in the Netherlands with 45 percent market shares in fixed line and mobile, posted core earnings of 5.1 billion euros in 2011 and free cash flow of 2.45 billion.
But the company, whose logo shows three green, blue and yellow blobs behind a crown, has been hit by a string of problems under chief executive Eelco Blok, a keen sailor and KPN-lifer who took the helm in April 2011, and has faced criticism from analysts, regulators, politicians and the public.
Analyst Ulrich Rathe at brokerage Jefferies in London noted KPN had underperformed the sector on a total return basis by 29 percent over the past year.
"That is relative to a sector which has suffered a lot," he said. "On that basis you have a strategic investor who has been eyeing Europe for a long time, according to media reports, saying this is my opportunity."
KPN has been struggling to reverse a decline in revenue, profit and market share in its fixed-line and mobile operations as it faces intense competition on its home turf. Its chief financial officer unexpectedly quit in January, citing disagreements over internal governance.
KPN and other mobile phone operators in the Netherlands are under antitrust investigation for possible price-fixing, while the local telecoms regulator put KPN under close supervision in December saying it may have broken the law to the detriment of consumers and competitors.
Another potential negative is that the Netherlands may get a fourth mobile operator at the next auction of mobile licenses later this year, since the regulator has set aside a chunk of spectrum at a low price for a new entrant.
Further competition could mean KPN's mobile business in its key home market will become structurally less profitable.
Under pressure from shareholders to improve performance, KPN has started to look at divestments including the possible sale of its Belgian subsidiary.
Sources familiar with the company's plans say KPN is mulling the sale of BASE, Belgium's smallest operator, and wants 1.8 billion euros for it.
Earlier this month, Der Spiegel reported KPN's German mobile phone service provider E-Plus is in early talks to sell thousands of cell phone towers to a financial investor to raise funds for network expansion.
Those divestments could be put on hold if America Movil wants to use KPN as a foothold for expansion in Europe, one person familiar with KPN's thinking said.
KPN has been rumored as a takeover or merger target in the past, most recently in September 2011 when Belgium's Belgacom BCOM.BR said a merger with KPN could make sense, although it was not clear how advantageous it could be.
The Dutch firm has snubbed three bid attempts, KPN's former chief executive Ad Scheepbouwer said last year, but he declined to give names of the companies involved.
Spain's Telefonica (TEF.MC) has been most often cited as a possible buyer of KPN. The two firms held merger talks in 2000 which collapsed after KPN said it felt the Telefonica board was not committed to the proposed link-up.
A source familiar with KPN's M&A talks said it had continued to seek tie-ups or strategic investors to boost its performance, including Chinese telecoms companies.
KPN is struggling to hold on to its market share as it invests in infrastructure in the Netherlands. As part of a major cost-reduction plan it aims to shed between 4,000 and 5,000 full time jobs, or up to 16 percent of the total, by the end of 2013.
America Movil, which said it already owns 4.8 percent of KPN's stock, said it would make a cash offer of 8 euros per share for the additional stock, a premium of roughly 23 percent to Monday's closing KPN share price.
Maurice Mureau, asset manager at Dutch brokerage and asset management firm Keijser Capital, said he did not expect a rival offer to appear.
"At this price, this is a good moment to say goodbye to KPN shares, so we are selling half our stake this morning," Mureau said. "KPN's business model is under pressure. They are losing share in the traditional telephone market and the new business in internet is not fully compensating for that.
"The competition is only getting tougher and things could go any direction," Mureau added. "All-in-all a good time to get out of the stock."
Deutsche Bank is advising America Movil on the KPN deal, which would also involve handling the tender offer if that goes ahead, while Clifford Chance is advising it on legal matters.
The deal would be the second major move on a Dutch company in recent months by an acquirer based in the Americas, after United Parcel Service Inc (UPS.N) announced plans to buy TNT Express NV TNTE.AS for 5.2 billion euros.
Previous Mexican investments in the Netherlands include a deal sealed in February for plastic pipe maker Mexichem (MEXCHEM.MX) to buy Wavin WAVIN.AS for 531 million euros.
($1 = 0.7663 euros)
Aditional reporting by Anthony Deutsch; with Robert-Jan Bartunek in Brussels; Sophie Sassard in London; Ioan Grillo, Tomas Sarmiento and Dave Graham in Mexico City; Editing by Richard Pullin and David Holmes