updated 9/19/2003 1:25:18 AM ET 2003-09-19T05:25:18

The Dutch government said Friday it has sold a 12 percent stake in telecom company KPN, in a deal valued at about 2.0 billion euros ($2.3 billion) days after it unveiled drastic budget spending cuts.

“The government is doing this simply because they need the money. They’ve raised around two billion euros in one go and that is positive,” said a Dutch share trader.

The Dutch finance ministry said the state had sold the 300 million shares in the former national telecoms monopoly to Citigroup Global Markets Ltd, for onward sale in the market, reducing the government’s holding to 19.3. percent.

KPN’s shares were 0.15 percent lower at 6.74 euros by 0943 GMT, after rising earlier to 6.88 euros.

The company completed a hefty restructuring earlier this year and raised its profit targets but the share price has underperformed the benchmark DJ Stoxx Telecoms index since the start of the year, pressured by fears the state might flood the market as it struggles to keep its budget deficit within European limits.

Dealers in London said that Citigroup was placing the KPN shares with investors at between 6.75 and 6.80 euros, which could raise up to 2.04 billion euros.

The placement price range lies within KPN’s share trading range over the last three days. Dealers also said Citigroup had orders for all the KPN shares.

Golden share retained
Petercam analyst Thijs Berkelder said in a research note that Citigroup would have purchased the shares at a 10 percent discount, earning the government 1.8 billion euros.

The finance ministry declined to comment on the figure, saying only that the proceeds would go into a state fund for infrastructure spending on projects like roads.

The government could cut its KPN stake further but said it has agreed with Citigroup not to sell any more shares for a year unless there are “certain exceptions.”

It also has no immediate plans to give up its “golden share” in KPN, the ministry said. The European Commission earlier this year took legal steps against the Netherlands, Italy and Denmark over golden shares held in former state-owned companies.

Golden shares are designed to allow governments to retain effective control of privatized firms and give the state the right of approval or veto over company decisions.

Traders said they now expected the Dutch government to reduce its more than 30 percent stake in postal firm TPG, in which it also holds a golden share.

The government declined to comment but TPG said it did not expect a state stake cut soon.

Acquisitions, dividend talk
KPN said it welcomed Friday’s sale news, hoping it would relieve the pressure on its share price.

“We are pleased with this clearance for the market. If you look at our share price for the last year the overhang caused by the fact that the state might sell its stake has pressured the price downwards. The lock-up for one year is also positive,” KPN spokesman Marinus Potman said.

Last Tuesday the Dutch government released its 2004 budget proposals with tax hikes and 11 billion euros ($12.4 billion) in spending cuts to meet EU deficit rules.

New estimates from the Central Planning Bureau, the government’s forecaster, forecast the budget deficit widening to 2.4 percent this year and next from 1.6 percent in 2002.

Analysts said KPN’s decision not to buy back the government’s stake itself could mean that it was hoarding its cash to spend on acquisitions. Speculation has been rife that KPN might buy the German mobile unit of Britain’s mmO2.

“The fact that KPN has not bought back these shares might be related to new expansion ambitions... such as the acquisition of O2 Germany and/or co-operations deals in other European countries,” said Petercam’s Berkelder.

KPN has said it remains interested in the German mobile unit of mmO2 but will not pay the one to two billion euros asking price analysts expect.

The likelihood of KPN also affording a 2003 dividend has now increased, analysts said. Earlier this month KPN Chief Executive Ad Scheepbouwer said he had not yet decided whether to buy back KPN shares or pay a dividend to shareholders.

“Now it seems that KPN has not bought back shares, a dividend has again become more likely. As all conditions as set by KPN for a reinstatement of a dividend have been met, we expect 0.10 euros per share already over 2003,” said Bank Oyens & Van Eeghen analyst Bert Siebrand.

Copyright 2012 Thomson Reuters. Click for restrictions.

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