Telefonica steps up to chase KPN’s E-Plus

Telefónica seems to have sealed its deal to buy KPN’s German mobile unit, E-Plus, after approval was gained from major KPN shareholder Carlos Slim by raising the value of its offer from 8.1 billion to 8.55 billion euros.

The Spanish telecoms groups original deal to buy KPNs E-Plus unit was placed into doubt earlier this month when Mexican billionaire Carlos Slims America Movil said it would launch a bid for the rest of the shares in KPN.

America Movil, which owns almost 30% of KPN, said on Monday it backed Telefonicas new offer for E-Plus and would press ahead with its plan to buy the rest of the Dutch firm. The agreement moves Telefonica closer to its goal of stepping up its challenge in Germany to market leaders Deutsche Telekom and Vodafone. KPN will receive 5 billion euros in cash for E-Plus and get a bigger stake in Telefonicas German business of 20.5%, compared with the 17.6% previously offered.

América Móvil said its 2.40 euros per share offer for KPN still stands, trying to refute speculation that Mr Slim had launched the takeover bid solely as a means to extract a better offer from Telefónica for E-Plus. América Móvil plans to submit an official bid document soon to the Dutch financial markets authority for approval. As a result KPN shares jumped over 2% on news of the agreement. KPN shareholders will meet to vote on the sale of E-Plus on October 2.

However, regulators are warn that reduced competition could lead to higher prices for consumers and mobile profit margins in Germany are already much higher than in Britain and France.

“Politicians seem to be more favorable to protecting telecoms companies … but this is an operation that will have a lot of scrutiny from the regulators,” BPIs Oliveira said cited by Reuters.

Telefonica, being on a debt-cutting drive to improve its balance sheet, can afford the new deal because it has shed 10 billion euros of debt since June 2012 and plans more asset disposals.

“The increased amount is not big enough to put pressure on the rating,” said Carlos Winzer, analyst at credit ratings agency Moodys, which rates Telefonica at Baa2, two notches above junk territory.

Telefonica SA stock price is up 0.42% at the moment in European trading.