Dutch telecoms company KPN has been experiencing a number of issues with its business. It faces stiff competition in its home market and has guided to reduced profits and cash generation this year as it invests in its domestic operations.
Uncertainty over how successful these measures will be in improving cash flow in the long run have caused markets to fear KPN would have to cut its dividend.
The market has been consensually negative on the business, to an even greater extent than it is on most other telecoms businesses, and the company’s share price has broadly halved over the last 18 months … and then, out of the blue, Carlos Slim, the Mexican business magnate and the richest man in the world, has just announced that he controls 5% of KPN’s shares and would like to tender to increase this stake to 28% – just below the 30% level where he would have to bid for the whole company.
Obviously when a man who has made the bulk of his £40bn-plus fortune from telecoms businesses in Latin America flags up an intention to build a significant stake in a telecoms business in Europe, it is worth taking note. Slim has not got where he is by wasting his money or making a lot of irrational investment decisions and indeed, in the past, has been very cautious about taking the plunge with European assets.
Not only is it interesting that while the stockmarket is consensually negative on KPN and on telecoms in general, Slim has decided to make this move at this time with this company, it is also an excellent illustration of the idea we have advanced many time before that value investors should continually be asking themselves the question, “What if?” What if the richest man in the world sees something in a company most of the wider market has written off?