Slim seeks to build Telekom Austria into European player

By Georgina Prodhan and Angelika Gruber

VIENNA (Reuters) - Mexican tycoon Carlos Slim plans to use Telekom Austria as a base to build a European telecommunications network after sealing an eleventh-hour deal with the Austrian state to take control of the company.

Slim's America Movil will invest up to 1 billion euros (821.42 million pounds) in Telekom Austria via a rights issue, on top of spending as much as $2 billion to buy out minority shareholders in a mandatory public offer.

The deal represented the first successful acquisition for Slim in Europe, where he has invested more than $4 billion in the past two years, building stakes in Telekom Austria and Dutch KPN, which subsequently rejected a full takeover offer.

America Movil, controlled by Slim, one of the world's richest people, said it would spend the money from the rights issue on acquisitions in new markets, infrastructure, research and development, new products and services.

Shares in America Movil fell by more than 1 percent in early trading on the Mexican stock exchange before easing. It was last off 0.47 percent at 12.84 pesos.

OIAG, the Austrian state holding company, which signed a co-ownership deal with America Movil late Wednesday night, said the partnership set the course for a "massive future growth path for Telekom Austria in CEE (central and eastern Europe)".

Telekom Austria is in seven CEE countries outside Austria, but has restricted itself in recent years to modest acquisitions in markets where it is already active. It has been battling fierce price competition at home while trying to limit its debt leverage.

Shares in the former state monopoly jumped 6.7 percent to 7.10 euros on Thursday after America Movil said it would offer 7.15 euros per share for the outstanding stock in an offering to be launched in the next few weeks.

The shareholder deal combines the OIAG's 28 percent of Telekom Austria with Slim's 27 percent in a syndicate holding structure. Slim will fund the takeover offer, and OIAG will reduce its stake to 25 percent in the rights issue.

TURBULENT MEETING

Under the 10-year agreement, Austrian interests would be protected by giving the OIAG veto rights as well as the appointment of the chief executive officer and chairman, keeping the company's headquarters in Austria, and maintaining a Vienna stock market listing.

The agreement came after a turbulent meeting of the OIAG's supervisory board that lacked a quorum for 12 hours because of a boycott by labour representatives who criticized its lack of explicit job guarantees.

"The Austrian state will lose its influence over one of its most important infrastructure companies," Werner Muhm, the influential head of Vienna's Chamber of Labour, said in a statement.

"Everything, including the question of how much will be invested in Austria and how ... will lie in the hands of a private company that is exclusively focused on profit and is based on another continent."

America Movil is facing increasing regulation and competition in Latin America, especially in Mexico, where it controls most of its home market.

Its market capitalization of $45.4 billion dwarfs Telekom Austria's $4.1 billion.

"Diversifying into tiny Telekom Austria is probably a good financial investment but hardly enough to offset the more general malaise," Berenberg telecoms analysts wrote in note.

The shareholder agreement, which has not been published, does not specify how the billion-euro proceeds from the rights issue would be spent, according to people who have seen it.

America Movil said the money would bolster the company's finances and put it in a position "to benefit from investment opportunities arising in the countries in which it currently operates and in emerging markets in Central and Eastern Europe".

"It will also contribute to better position Telekom Austria as a more relevant player in the European telecommunication markets and to be in a position to benefit from growth opportunities in the region," CEO Daniel Hajj said.

GENEROUS OFFER

Some analysts were concerned at the lack of a clear statement of how the funds would be used.

"Proceeds could be used to fund a mix of deleveraging, domestic fibre, and CEE acquisitions. Depending on the mix and the targets, this could increase or diminish the value of the company," wrote JP Morgan analyst Hannes Wittig.

Analysts said the offer looked generous, even at a modest 11 percent premium to the six-month moving average. They said it valued Telekom Austria in line with its peers at about 6.1 times earnings before interest, taxes, depreciation and amortization despite its higher risks in CEE and relatively low cash flow.

"We have the sense that AMX will have set the offer price at such a level as to manage the free float," said telecoms analysts at Jefferies, noting the commitment to maintain a Vienna listing.

Guenther Schmitt, who manages about 2.9 million Telekom Austria shares for Raiffeisen, said there was no need to take the 7.15 euro offer, which should now provide a support for the share price.

"Since the financing is secured and there is a turnaround in the Austrian market and prices are rising, there is a better basis for the company to develop more positively again," he said. "I see no reason to accept this offer."

(Additional reporting by Christine Murray in Mexico City; Editing by Jane Merriman, Elaine Hardcastle and Jeffrey Benkoe)