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KPN Plans $1B IT Acquisition

Ray Le Maistre
7/30/2007

KPN Telecom NV (NYSE: KPN) plans to buy fellow Dutch firm Getronics NV for €766 million (US$1.05 billion) in cash to break into the IT services market, a move already made by several other European carriers as they go in search of new, non-traditional voice-based revenue streams. (See KPN Makes Offer for Getronics.)

The Dutch operator, which today announced second-quarter earnings in line with expectations, says the move will "further transform KPN from a communication service provider to an end-to-end provider of ICT [information communications technology] services." (See KPN Reports 2Q07.)

KPN is to offer €6.25 for each Getronics share. The news sent the IT services firm's stock price up by €1.15, more than 22 percent, to exactly €6.25 on the Amsterdam exchange. KPN's share price dipped 1.5 percent to €11.10 on the same exchange.

According to a prepared statement from KPN's fabulously named CEO Art Scheepbouwer: "Telecommunications and IT services are increasingly becoming two sides of the same coin. More and more companies are converging their telecoms and IT requirements, sourcing all services from a single end-to-end vendor."

That convergence of demand has led other European carriers down the same path. BT Group plc (NYSE: BT; London: BTA), for example, has been building up its IT service capabilities, which it includes as part of its so-called "New Wave" services, through a series of international acquisitions and internal expansion. (See BT Buys Comsat, BT Buys Indian Outsourcer, BT Buys Polish Outfit, BT Wins Fiat, Buys Atlanet, BT Buys Spanish ICT Business, and BT, Reuters in $3B Pact.)

Orange (NYSE: FTE), Belgacom SA (Euronext: BELG), Telia Company have all acquired IT services assets as well. (See BT Leads New Euro M&A Charge, FT Takes Over Diwan, Belgacom Secures Telindus, and Euro Incumbents Transform.)

Today's news comes just two months after the Dutch incumbent announced the formation of a new division, KPN ICT Services, which is due to open its doors in the third quarter of this year. The operator has hired the former head of HP Inc. (NYSE: HPQ)'s infrastructure and services activities in Northwestern Europe, Erik van der Meijden, to run the new unit.

The move for Getronics also comes just days after KPN renegotiated its IT outsourcing deal with Atos Origin S.A. KPN, while continuing to work extensively with the services and integration giant, is taking over some of the Dutch data centers currently run by Atos, and is set to bring some of the services it had outsourced back in-house, now that KPN has "entered the market for workspace services." (See KPN Renews Atos Deal.)

If KPN's bid is successful, it will acquire a business with strong revenues but poor profitability. In the past 12 months Getronics generated revenues of €2.25 billion ($3.1 billion), but its operating profit was just €60.5 million ($83 million). KPN has identified cost savings worth €50 million ($68.4 million) and believes it could use Getronics' tax loss carry-forwards to offset future profits.

About half of Getronics' revenues come from outside the Netherlands, so the deal gives KPN the chance to expand internationally, especially in the U.K. and U.S. markets, if it wishes.

KPN is set to boost its international presence further with the purchase, after a very long courting period, of a majority stake in VOIP services player iBasis Inc. (Nasdaq: IBAS), which recently put its accounting problems behind it. KPN first announced its agreement with iBasis in June 2006. Now the takeover deal is expected to close during the next few months. (See iBasis Restated on Nasdaq and KPN International, iBasis to Merge.)

— Ray Le Maistre, International News Editor, Light Reading

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