Latest speculation is of a takeover bid for Dutch incumbent KPN and the breakup of Siemens Communications

February 17, 2006

3 Min Read
KPN, Siemens Under Scrutiny

All European telecom eyes were on Germany and the Netherlands today as German vendor Siemens Communications Group and Dutch incumbent carrier KPN Telecom NV (NYSE: KPN) countered market scuttlebutt about their respective futures.

KPN was under scrutiny following a Dutch newspaper report linking it (again) with Telefónica SA (NYSE: TEF). The report suggested the Spanish incumbent could link up with a business partner to make a bid for KPN, which has had the "For Sale" sign hoisted above its headquarters since the Dutch government relinquished its Golden Share, which had previously protected the carrier from hostile takeover bids. (See Dutch Put KPN on the Block and KPN Buys Golden Share.)

The two carriers have been linked before, and speculation about a merger between the two arises irregularly. A KPN spokesman says the carrier doesn't comment on speculation, but confirmed that "talks were held [between KPN and Telefónica] officially some years ago." The two carriers also recently inked an international agreement. (See KPN, Telefónica Link Up.)

The news did KPN's share price no harm -- it rose €0.22, about 2.5 percent, to €8.94 by early afternoon trading in Amsterdam. Telefónica's stock was up slightly, by just €0.07, to €13.07 on the Madrid exchange.

Telefónica has been busy expanding its empire in the past 12 months, acquiring Cesky Telecom a.s. and Telefónica Europe plc (O2) , and investing in China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906). But if it can find the right partner(s) to make a bid, it might see some value in holding on to some assets -- for example, KPN's mobile carrier in Germany would go nicely with O2's German operations -- and disposing of the rest. (See Eurobites: M&A, IPO & KPN, Telefónica Boosts Chinese Ties, and Telefonica Buys Cesky Telecom.)

Close attention is being paid to Europe's second tier incumbent carriers at present, following the acquisition of TDC A/S (Copenhagen: TDC), aborted talks between eir and Swisscom AG (NYSE: SCM), and a bid for Portugal Telecom SGPS SA (NYSE: PT). (See Eurobites: M&A, IPO & KPN, NTC Completes TDC Offer, and Swisscom Ends Eircom Talks.)

Siemens Communications, meanwhile, is the subject of an article in Germany's Manager Magazine, citing unnamed executives from the vendor, suggesting that parent company Siemens AG (NYSE: SI; Frankfurt: SIE) wants to break up the unit and either sell the parts or find business partners to help turn them around.

The Communications Group is one of the giant multinational's two problematic divisions and is still a considerable ways from achieving the margin target set by the parent company's board. (See Siemens Spawns a Problem Child.)

The telecom group's CEO, Thomas Ganswindt, was at the 3GSM World Congress this week talking up the vendor's growth in the mobile networks market with claims of a new 3G infrastructure deal each month. He says Siemens is on course to grow faster than the market in 2006 and close the gap on the sector's second largest vendor, Nokia Corp. (NYSE: NOK).

However, the wireless division's performance hasn't been enough to help the division turn a decent profit, with tough trading conditions in the enterprise systems market a particular drag on the Communications Group. (See 3GSM: It's an IMS Thing, Siemens Previews 3GSM, Siemens Reports Q1, and Siemens Wins in Indonesia.)

Siemens declined to comment on the issue.

— Ray Le Maistre, International News Editor, Light Reading

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