LONDON (Reuters Breakingviews) - DUTCH COURAGE. Buyout barons eyeing up KPN are having to contemplate an increasingly narrow door. The Dutch telecom firms shares have risen nearly a third since October, when Bloomberg first reported that EQT was lining up a potential bid. If the Swedish private equity firm is still interested, as the Wall Street Journal suggested on Thursday, its going to have to dig deeper and probably accept lower returns.
The potential EQT bid is at 3 euros per share, a measly 4% premium to Wednesdays closing price. That would value KPNs equity at 12.6 billion euros. Including around 6 billion euros of net debt, EQT and its partners will have to borrow 12 billion euros, assuming leverage of 5 times this years EBITDA. That translates into an internal rate of return of just 14%, assuming stable margins and modest top-line growth, according to Breakingviews calculations. Thats hardly stellar, and theres a risk the government nixes the deal before it happens. KPNs modest 2% share price rise suggests private equity may have missed the boat. (By Ed Cropley)