KPN’s CEO Paul Smits said on Wednesday that KPN would not seek to increase its stake in Cesky Telecom. KPN and TelSource, in which KPN has a stake, have a combined 33.5% stake in Cesky Telecom, and KPN was considered a serious potential bidder in CT’s forthcoming privatization. The statement sent CT’s stock down almost 6% at one point, to an intra-day low of CZK 557 per share), though the stock recovered somewhat in subsequent trading. KPN said that it would keep its current stake in CT.
KPN’s decision, in our view, makes CT’s privatization a bit more complicated because (i) KPN was perhaps first-choice prospective buyer of the government’s stake, and (ii) the government will be selling control of a company in which a major player has almost a blocking minority. In this sense, the market’s immediate negative response to KPN’s announcement was understandable. At the same time, KPN’s decision should not affect CT’s fundamental growth prospects, and we do not see a need for revising our long-term view of the company, which is positive.
Later in the day, the Deputy Transport and Communications Minister, M.Guerlichova, said that the state will sell its entire 51% stake to one strategic investor. Previously, selling a smaller stake and/or making a public placement were options too. Guerlichova also revealed that advisors have valued the government’s 51% stake at CZK 90 bil.-130 bil., which implies a price range of CZK 550-800 per share.
The National Property Fund said that KPN’s decision would not cause a delay in the Cesky Telecom privatization process. On the other hand, Deputy Finance Minister Jan Mladek, who is directly involved in the government’s major privatization projects, said that there will be a delay, and estimated that Cesky Telecom would not be privatized before the end of next year, which implies a few months’ delay vs. original market expectations (there has been no official privatization schedule for CT).
The Cabinet is scheduled to make a decision on the method and timing of CT’s privatization by the end of September.
Local press reports have mentioned Deutsche Telekom, British Telecom, Vivendi and SBC of the US as being candidates for the majority stake in CT, but this information need not be reliable, in our view.
Separately, CT announced its intention to organize its various Internet-related businesses (ISP, Internet advertising, etc.) into a separate division, to be called e.tel. For the time being, CT will not spin this division off. There are also reports that CT plans to launch an Internet portal and free Internet access.