KPN, Belgacom Just Say 'No' to Merger

Baldwin Louie — Fri, 31 Aug 2001 15:00:00 -0700

AMSTERDAM - Citing the current market environment in the telecommunication sector, Koninklijke KPN and Belgacom ceased talks on a possible merger, KPN said Friday.

Agreement could not be reached on key terms of the merger, KPN said in a statement. The Dutch telecommunication operator said the talks, which had gone on for weeks, were "friendly and constructive," but that the market environment was "a complicating factor."

KPN and Belgacom, the former telecommunication monopolies in the Netherlands and Belgium respectively, don't rule out a merger in the future. Discussions were ceased "at this point," according to the statement.

"We recognize the trend of European consolidation and we will be part of that," said KPN Chief Executive Officer Paul Smits in a conference call with reporters.

When asked if KPN would pick up talks again with Belgacom, Smits said that there can "always be a moment that we speak again, but that won't be in the near future."

A tie-up between KPN and Belgacom was seen by some as a good way for KPN to shoulder its enormous $21 billion debt. The goal of a merger would be to generate significant cost savings through synergies. However, the companies couldn't agree on a merger of the mobile companies or the balance of power in the combined entity, Smits said.

"A merger of equals was the starting point, but positions on valuation were far apart. We were very flexible, we would have agreed to a Belgian-nominated CEO and to headquarters in Brussels," he said.

Mobile phone assets presented a problem because Vodafone Group PLC has a 25 percent stake in Proximus - Belgacom Mobile SA. Vodafone is a major competitor to KPN in the Netherlands and Germany.

"Given the Vodafone position, it is impossible to merge the mobile operations," said Smits.

KPN will now concentrate on the disposal of noncore assets to repay its debt, the company said.

Shares in KPN (KPN.AMS) nose-dived 24.8 percent on the news to 3 euros, but regained somewhat and were down 18.5 percent at 3.25 euros in mid-afternoon trading on the Amsterdam stock exchange.

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KPN, Belgacom Just Say 'No' to Merger