During the 1990’s Mexico, under pressure from international organisations, opened its economy to neo-liberal policies that supposedly would replace inefficient and ineffective government intervention with the panacea for all economic problems: the free market. Thus Carlos Slim fought and won his bid for a takeover of the Mexican telecommunications company, Telmex, in 1989. This allowed the government to show it was serious about the reforms (after all, the telecom sector is quite crucial ), and it allowed Slim to obtain a private monopoly for pennies to the peso—which admittedly was not worth much those days, but still.
So what do those decisions, made in the ancient times before the iPhone and personal computers, have to do with the Netherlands, you ask? More than you’d think since Mr. Slim has now set his sights (and invested his money) on a Dutch company: the Koninklijke KPN, owner of fixed telephone operations and market leader for mobile network operations. A rather important investment, it would allow him to get a foot in the door of European telecommunications operations.
The Mexico-based America Movil had already bought a 28% stake in KPN in May of 2008. At the time, KPN was plagued by large losses in market value, due to a tough market and growing competition. Scandals, such as an investigation from the Dutch telecom regulator into consumer protection and competition laws and the resignation of the CFO due to disagreements with the CEO only made matters worse. The Mexican’s interest and investment in the company was, according to KPN, solid proof that its shares were undervalued. So, after the Slim investment, KPN lived happily ever after, having saved face and investors. Or did they?
Cut to July of 2013. KPN announced it would sell its German unit, E-Plus, to America Movil’s rival, Telefonica S.A. of Spain for $11.4 billion in cash and shares. This, of course, did not sit very well with the Mexican tycoon, who did not like the thwarting of his plans for world (or at least German) telecom domination. However, after Telefonica upped its offer by 6.4 percent Mr. Slim seemed to agree that his investment would also be benefited by getting rid of a bad operation.
Things appeared to be settled, but not so fast. Carlos Slim, being the smart man he is (sorry, couldn’t resist) decided that he also wanted to put out an offer to buy the 70% of the company he did not already own. This led to more commotion and a flurry of activity that even reached the news. Why, you ask again?
Of Foundations and vested interests
Enter the KPN Foundation. According to the AP, this is a “body peculiar to the Netherlands formed to defend the rights of not only shareholders, but also workers and customers”. In their view, Slim’s bid was to be considered hostile and it exercised its right to issue a specific type of share (temporary preference shares), that would be worth 49.9% of voting rights in KPN. That would mean effectively that Mr. Slim would be left without control of the company. Their approach, they said, was what would benefit Dutch society as a whole the most, because Mr. Slim had played dirty. It’s as if they had not checked his track record at all. A savvy businessman, he had bought his first shares in a company at the sweet age of 12. By age 26 he was already worth 40 million USD, but it was not until the economic crisis of the 1980s in Latin America that he showed the world he knew how to make himself rich in a recession. His secret? Buying companies at very low prices and then transforming them into profitable enterprises. Sound familiar?
Here’s the 93 second movie of the Carlos Slim bio for all you ADD’ers reading DutchReview:
The investment has certainly thus far not benefited Mr. Slim or America Movil, which has lost some 2 billion USD on paper from the KPN buy alone. After the announcement on Friday that America Movil would not raise its offered price, America Movil shares actually went up.
It takes two to tango (or to play the marimba in this case), and everyone interested in the case is still waiting for the shareholder’s meeting of KPN, due to take place in early October. Until then, shareholders will be the ones suffering as a result of the uncertainty. So what about the customers? They are used to ” Dutch service”, so will they notice any change at all?