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Slim closes in on pact to secure Telekom Austria

A jogger runs by a Telekom Austria phone booth in Vienna November 14, 2013. REUTERS/Heinz-Peter Bader
A jogger runs by a Telekom Austria phone booth in Vienna November 14, 2013. REUTERS/Heinz-Peter Bader

By Angelika Gruber and Georgina Prodhan

VIENNA (Reuters) - Carlos Slim's America Movil and the Austrian government are moving towards a deal to pool their stakes in Telekom Austria, which would lead to a takeover offer and mark a further step in the Mexican tycoon's expansion in Europe.

Austria's economy minister said on Tuesday talks about creating a shareholder pact, which both parties said had been informal so far, could wrap up within weeks.

American Movil, which faces increased regulation and competition in Latin America and is looking to expand into a recovering European economy, said on Monday it could move to formal talks with Austria.

An alliance would hold 55 percent of Telekom Austria - 28 percent from state holding company OIAG and 27 percent from America Movil - obliging it to make a takeover offer under Austrian law.

Telekom Austria shares closed up 1.65 percent, valuing the whole business at more than 3.1 billion euros ($4.3 billion). The stock earlier touched 7.31 euros, the highest since July 2012, two months after Slim made his first decisive move on the company by agreeing to buy 21 percent.

Slim's investments in a mature and highly competitive European telecoms market have surprised analysts and are currently loss-making, though some think they could be a canny bet on growth picking up and regulation easing.

The Mexican bought most of his current stake in Telekom Austria at 9.50 euros a share.

Analysts expect he will become the largest shareholder following any takeover offer for Telekom Austria, but he is eager to secure a friendly deal after his attempt to buy Dutch telecoms group KPN last year was blocked by a KPN foundation that viewed his bid as hostile.

Slim's Mexican biographer Jose Martinez told Reuters the telecoms mogul was pursuing a long-term strategy in Europe and said America Movil was still keen to take control of KPN.

"He's going to persist, no doubt about it," Martinez said. "That's his message: he's interested in European markets."

Some analysts believe Slim's medium-term plan is to create a cross-border operator that could eventually compete with the likes of Vodafone and Deutsche Telekom in Europe, and that he may also be eyeing Telecom Italia.

"We view an AMX (America Movil) approach to Telekom Austria as reinforcing the investment case for Telecom Italia and KPN," Bernstein analysts wrote in a note.

"It suggests that AMX is intent on owning a small but dominant player in Europe to enjoy the future benefits of a buyout as companies build pan-European footprints."

A PATIENT MAN?

For Austria, a pact would ensure a continued say in important decisions about Telekom Austria, a former state monopoly which employs more than 9,000 people in the country, even if Slim raised his stake to overtake the OIAG's.

Economy Minister Reinhold Mitterlehner, a member of the conservatives, junior partners in the ruling centrist coalition, told the Austria Press Agency he welcomed the talks with America Movil and said a final result was possible "in the next weeks".

Austrian finance minister and conservative party leader Michael Spindelegger, whose ministry controls the OIAG, said: "We are open for a close cooperation."

Austria has said it wants to keep a blocking minority of at least 25 percent plus one share in Telekom Austria in the event of a widely-expected capital increase by the firm, and would not try to oppose Slim building his stake.

A spokesman for Telekom Austria said the company could not comment on shareholder matters.

It is unclear whether Slim would try in the first instance to bid high enough to take Telekom Austria completely private or would be content with a majority that would allow him to consolidate the company's results while leaving some shares to trade on the stock exchange.

The alliance would have to offer at least the six-month share price average of 6.09 euros, well below the current price.

"If the mandatory offer is at the average price, he won't get many shares," said fund manager Guenther Schmitt of Raiffeisen Capital Management, who has Telekom Austria shares.

"The market is expecting Slim to do something quickly. But it could easily be that he has more patience than the market."

With an enterprise value (equity plus debt) of 5.5 times earnings before interest, tax, depreciation and amortisation (EBITDA), Telekom Austria is expensive compared with a median of 5.2 for its European peers.

It is also almost a third as expensive again as America Movil at 4.2 times, according to Thomson Reuters data.

Telekom Austria is struggling with fierce competition in its home market, a country of 8.5 million, where mobile tariffs are among the lowest in Europe, although they have begun to rise in the past months following market consolidation last year.

The company is expected to report a 12 percent drop in fourth-quarter profit on Wednesday.

It is active in seven central and eastern European countries outside Austria, including Bulgaria, Croatia and Belarus.

($1 = 0.7285 euros)

(Additional reporting by Michael Shields in Vienna and Dave Graham in Mexico City; Editing by Mark Potter and Meredith Mazzilli)

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