European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

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Event-Driven

Shares of <a href="https://www.smartkarma.com/entities/koninklijke-kpn-nv" target="_blank" data-smartkarma-citation="entities:21122:1" rel="noopener">Koninklijke KPN (KPN NA)</a> closed on Monday 12 October c. 7% higher vs. the previous trading session, the highest level in three months, after Bloomberg News reported on Friday that EQT was considering a potential takeover bid.
<ul>
<li>EQT was said to be in early discussions with advisers on a deal, without any final decision having been made.</li>
<li>Both KPN and EQT declined to comment on the report.</li>
<li>KPN shares had lost 17% since the start of the year until Friday.</li>
</ul>
Given the depressed valuations of telco companies in Europe, the move by EQT is unsurprising, in my view.
KPN has a strong takeover protection against unwanted suitors. It can issue B-shares (preference shares) with the same voting right of KPN A-shares (ordinary shares) as a takeover defense. I believe that, if made, any bid approach should be agreed with KPN’s management in order to avoid higher dilution in KPN’s share capital.
In addition to the poison pill already mentioned, a deal could be blocked by the Dutch government using a law adopted this year that gives the government the option to block takeovers of Dutch telecom companies if they are deemed a threat to national security (source Reuters).
I believe that KPN is an ideal target for Private Equity.
<ul>
<li>KPN is the largest fixed line and mobile operator in the Netherlands (30% market share).</li>
<li>Has strong free cash flows and predictable revenue streams</li>
<li>Has the management capable to efficiently run a mature business</li>
</ul>
Using Capital IQ consensus numbers, a 7.6x EV/EBITDA exit multiple, an acquisition premium of 15% to last closing price (€2.4 per share), an equity portion of 25% and spread of 250bps to 10-year Euro swap rates, I think an offer price of €2.76 could generate an IRR of 13.1% by year 8 (see table below).
On a valuation basis, KPN does not appear expensive, plus there is the upside of a takeover bid. Recommendation is LONG KPN, target price €2.76.

Shares of Koninklijke KPN (KPN NA) closed on Monday 12 October c. 7% higher vs. the previous trading session, the highest level in three months, after Bloomberg News reported on Friday that EQT was considering a potential takeover bid.

EQT was said to be in early discussions with advisers on a deal, without any final decision having been made.
Both KPN and EQT declined to comment on the report.
KPN shares had lost 17% since the start of the year until Friday.

Given the depressed valuations of telco companies in Europe, the move by EQT is unsurprising, in my view.
KPN has a strong takeover protection against unwanted suitors. It can issue B-shares (preference shares) with the same voting right of KPN A-shares (ordinary shares) as a takeover defense. I believe that, if made, any bid approach should be agreed with KPN’s management in order to avoid higher dilution in KPN’s share capital.
In addition to the poison pill already mentioned, a deal could be blocked by the Dutch government using a law adopted this year that gives the government the option to block takeovers of Dutch telecom companies if they are deemed a threat to national security (source Reuters).
I believe that KPN is an ideal target for Private Equity.

KPN is the largest fixed line and mobile operator in the Netherlands (30% market share).
Has strong free cash flows and predictable revenue streams
Has the management capable to efficiently run a mature business

Using Capital IQ consensus numbers, a 7.6x EV/EBITDA exit multiple, an acquisition premium of 15% to last closing price (€2.4 per share), an equity portion of 25% and spread of 250bps to 10-year Euro swap rates, I think an offer price of €2.76 could generate an IRR of 13.1% by year 8 (see table below).
On a valuation basis, KPN does not appear expensive, plus there is the upside of a takeover bid. Recommendation is LONG KPN, target price €2.76.

K P N - E Q T: Prospective Private Equity Bid