The Deal: Telefonica Raises Offer for E-Plus To Win Backing

NEW YORK ( The Deal) -- Spain's Telefonica SA on Monday, Aug. 26, increased its agreed offer for E-Plus, the German cellular division of Royal KPN NV, to win the backing of major KPN shareholder America Movil SAB de CV ( AMX).

Telefonica, of Madrid, said it would now pay a total €8.55 billion ($11.4 billion) in cash and shares to merge E-Plus with its own German O2 cellular division, the country's No. 4 and No. 3 wireless companies, respectively.

"The transaction will generate expected synergies valued between €5 billion and €5.5 billion and will make Telefonica the second largest European operator," the company said.

The acquisition still faces tough questions from Germany's competition and telecommunications regulators. Both watchdogs have expressed concerns the deal would eliminate a key low-cost competitor and shrink Germany's cellular playing field to three competitors from four. The Bundesnetzagentur, the agency which awards cellular licenses, has also said E-Plus' licenses are contingent on it remaining independent.

After increasing its minority stake to 29.77% last year, America Movil earlier this month launched a €7.2 billion offer for KPN. The Mexican company said it wanted to help troubled KPN get back on its feet but there was speculation that the suitor, controlled by billion Carlos Slim, was unhappy with the terms of the E-Plus sale.

In the two-part E-Plus agreement, Telefonica's German Telefonica Deutschland Holding AG will first pay KPN €3.7 billion in cash as well as a 24% stake in new Telefonica Deutschland shares. Telefonica itself will then buy a 4.4% stake in the expanded Telefonica Deutschland from KPN for €1.3 billion, leaving KPN with a 20.5% stake in the expanded German cellular company.

The previous agreement had Telefonica buying a bigger stake from KPN for the same amount, leaving KPN with 17.6% of Telefonica Deutschland. Telefonica said the new deal also allows it to buy an additional 2.9% Telefonica Deutschland stake to boost its investment to 65%.

"America Movil has agreed with Telefonica to vote in favour of the E-Plus transaction at the improved terms at the extraordinary general meeting of shareholders of KPN," the company said.

KPN shares gained 2.8%, or €0.063, to €2.32 in morning Amsterdam trade as Telefonica Deutschland rose 3.2%, or €0.162, to €5.236 in Frankfurt while Telefonica rose less than 1%, or €0.04, to €10.76.

UBS ( UBS) and Bank of America Merrill Lynch are acting as financial advisers to Telefonica Deutschland while CMS Hasche Sigle's Oliver Thurn, Martin Kolbinger, Martin Kuhn, Jens Neitzel, Daniel Hofmann, Christian Runte, Michael Bauer, Claudia Rid, Hildegard Ziemons, Stefan Hoss, Philipp Melzer, Stefan Luft, Rolf Leithaus, Richard Mitterhuber, Thomas Muhl, Petra Stockle and Tilman Weichert are providing counsel. Also acting as legal advisers to Telefonica Deutschland are a Milbank Tweed Hadley & McCloy LLP team led by Alexander Rinne.

KPN is taking legal advice from Allen & Overy's Jan Burggraaf and Hartmut Krause as well as Bird & Bird LLP's Sven-Erik Heun and Valerian Jenny.

Written by Andrew Bulkeley.

More from Mergers and Acquisitions

10 Questions for PayPal Ahead of Its Big Investor Day

10 Questions for PayPal Ahead of Its Big Investor Day

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Square Shares Shake Off Concerns About PayPal's Deal for iZettle

Square Shares Shake Off Concerns About PayPal's Deal for iZettle