ATLANTA-BellSouth Corp. became the first U.S. operator to enter the European wireless industry’s recent merger and acquisition frenzy by exercising its right of first refusal to acquire 100 percent of E-Plus, Germany’s third-largest mobile operator. As part of the deal, The Netherlands’ KPN Telecom will take over a 77.5-percent stake, and the two carriers will share control of E-Plus.
The move stops an October bid by France Telecom to acquire the stakes of E-Plus owned by Vodafone AirTouch plc and German utilities Veba and RWE.
Under terms of the agreement, KPN is providing BellSouth a $9.4 billion loan to purchase the Vodafone and Veba/RWE 77.49-percent E-Plus holding. KPN then will convert the loan into a holding company, BellSouth GmbH, which will own and operate E-Plus. BellSouth will retain its current 22.5-percent E-Plus share, which is valued at $7.8 billion, BellSouth said.
“Our ownership stays the same, but we end up with shared control vs. limited control,” said BellSouth’s Gary Forsee, chief staff officer, in a conference call.
As part of the agreement, BellSouth also has the option to convert its 22.5-percent of E-Plus into a 19-percent ownership interest in KPN or shares worth about $6.5 billion in KPN Mobile during the subsequent 30 months. KPN Mobile is a holding company for KPN’s wireless investments and is expected to go public in first-half 2000.
France Telecom reached an agreement in October to buy the 17.24-percent stake in E-Plus held by Vodafone AirTouch plc for $1.78 billion, and then said it planned to buy the 60.25-percent share jointly held by German utilities RWE and Veba for $7.58 billion.
“France Telecom is reviewing the conditions of exercise by BellSouth of its right of first refusal and will take all measures to defend its rights and protect the interests of its shareholders,” said France Telecom in a statement.
The BellSouth/KPN partnership is a setback for France Telecom’s international expansion plans. In the current European climate, wireless assets are at a premium and telecom companies have been frantically jockeying for positions in the most lucrative markets.
“France Telecom is committed to continued development in Europe, as part of the ongoing restructuring of the telecom market and will examine the opportunities that will continue to become available in the coming months,” the company said.
BellSouth, which holds mostly Latin American wireless interests outside the United States, also agreed to make up to $3 billion of loans to KPN to be used for further wireless investments in Europe. BellSouth said it also will consider providing further loans of up to $5 billion to KPN for acquisitions of wireless carriers in Europe.
“As a result of exercising our right of first refusal, we now have options in Europe that we otherwise wouldn’t have had,” said Forsee. “We are able to convert our position and participate in [Europe’s] growth. But we believe strongly in the global wireless market in total.”
The deal also gives KPN, the former Dutch national telecom company, a platform to become one of Europe’s leading wireless companies. KPN has about 3 million mobile subscribers today.
The E-Plus Global System for Mobile communications 1800 network is projected to serve 3.5 million subscribers by the end of 1999. Wireless penetration in Germany is about 23 percent, which is considerably lower than other Western European countries.
