KPN saw a modest increase in its share price early on Thursday after rumors surfaced that Swedish private equity firm EQT is teaming up with Stonepeak Infrastructure Partners on a possible takeover bid.

Bloomberg reported last year that EQT was in the early stages of discussing the feasibility of a deal with potential advisers.

The Wall Street Journal is now suggesting that New York-based Stonepeak and EQT are working on a joint bid that would value the Dutch telco at more than $15 billion.

According to the report, which cited unidentified sources, the funds are preparing to conduct due diligence with the goal of submitting a formal bid this spring. The WSJ added that it is possible they could take on another partner, and that competing bids may also come into play.

Shares in KPN rose to €2.95 ($3.50) per share on Thursday morning, up from €2.88 at the close of trading on Wednesday.

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

Challenging times

In early 2020, 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.

Jefferies analysts have previously 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 said in 2020 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, further exacerbated by the effects of the coronavirus pandemic.

Fitch Ratings recently gave the telco a BBB rating with "outlook stable."

It pointed to positive factors such as KPN's strong domestic market position in both the mobile and fixed-line/broadband segments, "supported by its strategy to accelerate fiber deployment and 5G rollout. KPN estimated its market shares at approximately 52% in broadband (including wholesale), 31% in TV and 37% (by value) in mobile at end-2020," Fitch said.

The ratings agency said KPN's challenges include "a lack of clear growth opportunities and stemming modest market share declines," combined with rising infrastructure competition and market share ambitions.

Potential buyers?

The two putative buyers have some credentials in the telecom sector. In March 2020, for example, EQT joined with Digital Colony Partners to acquire fiber network owner Zayo Group Holdings, and has also invested in Dutch telecom provider Delta Fiber, German broadband provider Deutsche Glasfaser and Maltese operator Melita.

The investor also set up a fifth infrastructure fund, EQT Infrastructure V, last year with a hard cap for investor commitments of €15 billion that the fund is expected to reach in 2021.

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Stonepeak Infrastructure Partners describes itself as a private equity company with a "conservative yet opportunistic approach to infrastructure investing."

It specializes in energy, power and renewables, transportation, utilities, water and communications. Founded in 2011, Stonepeak manages over $31 billion of capital for its investors (as of February 2021).

Its portfolio includes euNetworks Holdings, which provides mission-critical fiber connectivity across major markets in western Europe; ExteNet Systems, an independent provider of distributed networks enabling outdoor and indoor wireless connectivity; Vertical Bridge, a private owner and manager of wireless communication infrastructure in the US; and Xplornet Communications, a rural broadband service provider in Canada.

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— Anne Morris, contributing editor, special to Light Reading