August 30, 2013 4:50 pm

America Movil falls foul of informal Dutch takeover rules

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From the start of Carlos Slim’s effort to acquire KPN, there have been questions over whether the Netherlands would let the former state telecoms monopoly fall into foreign hands.

Those doubts seemed vindicated on Thursday when an independent foundation charged with protecting KPN’s stakeholders exercised a poison-pill option and blocked the deal, at least for now.

But the sticking point was not so much concern over national interests as a failure by the Mexican billionaire’s company, America Movil, to abide by the consensus-driven practices of Dutch business culture. Many analysts said the move seemed aimed not at torpedoing the agreement but at forcing America Movil to negotiate amicably with KPN, and that the offer could well go forward if the Mexican telecom changed its style.

In a press conference on Friday, the Foundation Preference Shares B KPN said America Movil had broken the informal rules of Dutch business. The Mexican group submitted its official bid to Dutch authorities last week without first striking a relationship agreement with KPN’s board, and without negotiating with other stakeholders, including customers and workers, over the contents.

“In football, the rules in the Netherlands and Mexico are the same, but this isn’t football,” said Jacques Schraven, the former Shell executive who heads the foundation’s five-member board.

“The process is that you’re supposed to have a relationship agreement acceptable to both sides, and then bring out the bid document,” said Peter Wakkie, a corporate lawyer and member of the foundation’s board. Because America Movil had done things the other way around, KPN would have been “negotiating with their backs to the wall while the bid is under way”, he added.

America Movil on Friday disputed the foundation’s charges, saying it had discussions with KPN before making its initial bid and was negotiating a new relationship agreement. The company said on Friday it was still committed to the takeover offer but would withdraw it if “the foundation maintains its current position”.

The foundation was established in 1994 when the Dutch government privatised the former state telecoms monopoly. It has the power to exercise a call option creating enough new preferential shares to give it a stake of 50 per cent minus one vote, which it exercised on Thursday.

In contrast to other European countries such as France, the Netherlands has historically had an open attitude towards takeovers. The Dutch government did not interfere with the 2007 takeover of the country’s largest bank, ABN AMRO, or with last year’s bid by UPS to acquire delivery company TNT Express, though that deal was eventually blocked by European regulators.

But the country does have a tradition of society-wide agreements on economic affairs that can be hard for outsiders to get used to. The foundation took pains to emphasise on Friday that it had no objections in principle to America Movil acquiring KPN provided the process was not hostile.

“The Netherlands is a country of consensus,” said Peter Werdmuller, a lawyer at Dutch firm Houthoff Buruma. He said he expected talks over the intended bid to go forward. “The foundation’s focus appears to be on due process, fairness, and facilitating negotiations. They said that they’re trying to give both sides a push in the back.”


Foundation blocks


The group that blocked America Movil’s takeover bid for KPN is an example of an entity that is fairly common in the Netherlands, but rare outside it: the independent corporate foundation.

Such foundations are often established as a tool for corporate boards to fight activist shareholders or prevent takeovers. Dutch bank ING has a foundation empowered to prevent a “coincidental majority” at a shareholder meeting from seizing control of company policy. Semiconductor firm ASMI’s foundation intervened in 2008 to block activist shareholders from firing the company’s management.

KPN’s foundation was established in 1994 when the company was established through the privatisation of the former Dutch state telecoms monopoly. In the new company’s statutes, the Dutch state gave itself the right to create preferential shares in the company, to block any moves that might threaten national interests. It also created a foundation, with a board of five members drawn from the Dutch corporate world, that had similar rights.

The foundation’s mandate is to protect KPN’s identity and the interests of all stakeholders: shareholders, workers, customers, and Dutch society as a whole. To do so, it can exercise a call option that creates new preferential shares giving it a stake of 50 per cent of the company, minus one vote. The shares cannot be sold, but they do earn dividends.

In turn, the foundation is required to deposit capital in KPN amounting to 25 per cent of the shares’ nominal value. The foundation borrowed those funds, totalling €252m, from Dutch banks. After a maximum of two years, the foundation must redeem the shares, using the capital plus its accumulated dividends to repay the bank loans.

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