Where Carlos Slim Failed, a Rival Spies an Opening

(Bloomberg Opinion) -- The appalling success rate of foreign takeovers in the Netherlands hasn’t deterred Brookfield Asset Management Inc. from exploring a bid for Dutch telecoms operator Royal KPN NV. After billionaire Carlos Slim’s failed tilt at KPN back in 2013 — and others’ abandoned approaches for Ben & Jerry’s-maker Unilever NV and paints group Akzo Nobel NV — it will take a lot more than just a high price to get a transaction for critical Dutch infrastructure over the line.

Brookfield, which Bloomberg News revealed is in the early stages of evaluating a bid, faces probable protectionist opposition. But at least it starts with one advantage over those previous thwarted suitors of the Dutch: It is wisely considering a partnership with local pension funds on any approach. That would immediately present a friendlier face than a corporate CEO suspected of eyeing cost cuts.

There is a precedent in Europe. Australia’s Macquarie Infrastructure and Real Assets bought Danish telco TDC A/S last year in a consortium with local pension firms. The group offered a 32 percent premium and carefully positioned its offer as supporting much-needed investment in Denmark’s broadband networks.

Where Carlos Slim Failed, a Rival Spies an Opening

Nevertheless, executing a similar plan will be hard for Brookfield. Even having local allies on board might not be enough to garner the needed support. Big Netherlands companies often have a very international ownership. At the same time, the Dutch pension funds invest a lot overseas and may need persuading to write a large check in their home market.

That matters because of the potential size of the transaction. Assume a lowish 25 percent premium and a bid would cost about 13 billion euros ($14.9 billion), or 19 billion euros including net debt as of its most recent results. That would equate to about 8.6 times trailing Ebitda. TDC was acquired on a 7.7 times multiple.

What’s more, it may not be enough for Brookfield to position a bid as simply preserving local employment. The difficulty will be in showing how a change of ownership would support growth and actually create jobs. Finally, Brookfield will have to persuade Slim, who still owns 16 percent of KPN, to sell or find a structure that lets him stay invested.

Brookfield is surely aware of the environment it would be entering in the Netherlands. Government and business there are more closely intertwined than in many other countries. During the bid battle for Akzo, lawmakers floated the possibility of introducing a year-long pause on bids. If Brookfield can pull this off, it will have removed the “Not For Sale” sign that seems to hang over the Dutch market.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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