KPN saw its share price surge early on Monday after rumors surfaced that Swedish private equity firm EQT is considering a takeover of the Dutch operator.

Bloomberg, citing unidentified sources, said EQT is in the early stages of discussing the feasibility of a deal with potential advisers. KPN said "as a matter of policy" it did not comment on market rumors.

Shares in KPN rose to €2.44 ($2.88) per share on Monday morning, up from €2.24 at the close of trading on Friday.

KPN is no stranger to takeover bids and speculation, although none has succeeded to date. Carlos Slim, the billionaire owner of América Móvil, abandoned his $9.5 billion bid to take control of the operator back in 2013. In early 2019, it was reported that Canadian investor Brookfield Asset Management wanted to take over the group, but no offer materialized.

As Bloomberg noted, any takeover attempt these days would have to win the backing of both the KPN management and the Dutch government.

Two-pronged defense

Earlier this year, the Dutch parliament approved legislation giving the government more power to intervene in takeovers in the telecom sector. As Slim found out to his cost, a foundation associated with KPN could also acquire enough stock to thwart an acquisition.

David Vagman, an analyst at ING Bank NV, told Bloomberg that "both the Dutch government and the foundation at the top of KPN can refuse such a deal, for lots of good and bad reasons, not only financial ones. They can be political, strategic, chauvinism or management's own interest, among other things."

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Jefferies analysts also said it was "unclear" what private equity could do that is not possible under public ownership. "We do not argue KPN is undermanaged," the analysts added, pointing to "structural challenges" such as competition, regulation, market structure and outlook.

KPN has certainly been facing a number of challenges in recent years in an increasingly competitive market environment. When he was appointed CEO in late 2019, Joost Farwerck took on a group engaged in cutting costs and seeking new revenue streams after rivals Vodafone NL and T-Mobile NL bolstered their own positions through acquisitions.

In the first half of 2020, KPN's revenue fell by 3.6% year-on-year to €2.62 billion (US$3.1 billion) and the operator said the pandemic had an estimated negative impact on its adjusted gross profit of €5 million-€7 million ($5.9 million-$8.25 million).

Strong credentials

To be sure, EQT has some solid credentials in the telecoms sector. In March, it joined with Digital Colony Partners to acquire fiber network owner Zayo Group Holdings and has also invested in Dutch telecoms provider Delta Fiber, German broadband provider Deutsche Glasfaser and Maltese operator Melita.

The investor has also just set up a fifth infrastructure fund, EQT Infrastructure V, with a hard cap for investor commitments of €15 billion ($17.7 billion).

However, the hurdles to an acquisition of KPN may be too great to surmount, and it remains to be seen whether or not an offer from EQT will even come to the table.

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— Anne Morris, contributing editor, special to Light Reading