## KPN rights issue: Final terms

I have covered KPN as a potential “deeply discounted risghts issue” special situation in the past.

Today, KPN announced the final terms for their rights issue (bold marks mine):

2 for 1 rights issue of 2,838,732,182 new ordinary shares at an issue price of EUR 1.06 for each ordinary share
• Issue price represents a 35.1% discount to the theoretical ex-rights price, based on the closing price of KPN’s ordinary shares on NYSE Euronext in Amsterdam at 24 April 2013
AMX has committed to subscribe for the Rights pro rata to its current participation in the issued share capital (excluding treasury shares) of 29.77%
Record Date for Offering is set at 25 April 2013 at 5.40 pm CET
Exercise Period runs from 9.00 am CET on 26 April 2013 until 3.00 pm CET on 14 May 2013• Rump Offering (if any) is expected to take place on 15 May 2013

What I find very remarkable is that there is only a very short time period between announcement of the terms and the start of the trading of the rights. Basically they announced today and trading starts tomorrow.

For the portfolio, I will start with a 1% investment as a rather “short term” special situation based on current prices of around 2.61 EUR per share. Lets wait and see how that one works out.

• Value Investor

Hi, could someone tell me if they managed to calculate the R factor correctly for adjustments to options prices ? The official closing px is 2.78. The theoretical ex rights px = (2.78 + 2*1.06)/3 = 1.633, this ties up with KPN’s press release. 1.06 is 35.1% discount to 1.633. One would get R = 0.5875, resulting in 1/R = 1.7.

For e.g, if you own 1 KPN call option with strike 4 expiring dec 15 on April 25, you would expect the new strike to be 4*1.633/2.78 = 2.35 and the new multiplier to be 1.7 times the old one based on the calculation above.
But the actual strike is 2.43 and the new multiplier is 1.65. Any ideas why this is different ?

For e.g take a look at KPN NA 12/18/15 C 2.43 and KPO NA 12/18/15 C 2.43. The multipliers are 100 and 65.

https://www.eurexchange.com/exchange-en/resources/circulars/478526/

• If I buy (say) 100 nil paid today- say at €1 – how many shares will I have and at what price on Tuesday 14th (after the end of the rights issue )

• well, you buy the right to purchase 2 shares at 1.06 EUR.

So you have to shell out an extra 200*1.06 =212 EUR before you get your sharrs. Your total purchase price will then be 1/2 +1.06 = 1.56 EUR per share.

• DanteAllemis

fyi, rights Isin: NL0010421525, most banks should have booked them by now.

Now are we just playing the decrease of selling pressure once capital increase is finished, or could we imagine a different catalyst for KPN share price? Maybe this:

Yesterday, Bloomberg reported that Telefonica is considering the sale of its German broadband and fixed-line business. According to the article, these assets might have an EV of EUR 2bn. The report adds that Telefonica is also considering sharing its wireless network with a rival and a full merger with KPN’s E-plus (estimated NPV of synergies is at EUR 4bn).

The european mobile market definitely needs some consolidation and this would seem to make a lot of sense. Question: Would KPN rather disinvest in Eplus via public listing or retain its share (how much?) of the bigger and more profitable (what profits to expect with the synergies?) Eplus/o2? Can someone do the math: Compare the valuation of (listed!) Telefonica Germany ( DE000A1J5RX9 ) ex broadband and fixed-line business on a customer/revenue multiplier basis with that of Eplus, add a share of those synergies and come up with a number of (hopefully) unlocked value for KPN in case of a o2/Eplus – merger. Just shooting from the hip, here.

• #Dante,

to be honest, I am not convinced on the long term appeal of the shares. For me its more a 3-6 month special situation.

mmi

• Does somebody know when the rights will be available in my depot?

• Consors shows the rights already.

• Rights hasn’t shown yet by comdirect..

• Bought some shares ex-right today. I don’t want to have the rights, because they possibly don’t meet my liquidity requirements and transaction cost is a little bit lower without rights execution.

• DanteAllemis

Executing your rights will not bear costs (other than buying the shares for 1,06 each). Spread is quite narrow in AMS (0,002 €), but wide in Germany (0,04). The spread of the shares itself is a lot narrower, so it seems that other than for a large position buying the shares outright is be cheaper.

• ok…I join the game. When the capital increase was announced the share price was Euro 3,1…so 3,1+1,06+1,06/3 = 1,74. If the dust settles this share price is my personal target…more I do not expect ;-).

• The day BEFORE the capital increase was announced, the stock price was 4.10 EUR.

• (4.10+1.06+1.06)/3=2,073
price today 1,56
discount 24,7%
As there were cost for KPN real economic discount is somewhat lower.

• based on 4,10 the price could go to Euro 2. However I guess the main sharholders valued KPN lower…based on a price crunch after the announcement. But certainly I have no objetions against a higher share price in May :-). What is your personal expectation?

• In order to play the mmi game…it is cheaper to buy today the shares ex-right…isn’t it?

• DanteAllemis

You get 2 rights for each share you owned @17:40 today. (Yes, outstanding shares will tripple.) Expected price tomorrow morning = (2,59+1,06+1,06)/3= 1,57. Expected price of right = 1,57 – 1,06 = 0,51.

So, discount to TERP is >32% (1-1,06/1,57). Discount expected price ex tomorrow to price cum today is not really a ratio worth computing…

Looking forward to memyselfandI’s comment on tomorrow market action. I am expecting some violent swings but a when the dust settles a nice rise during the next 2-3 weeks.

• Indeed, you seem to be right, I was wrong, they had before only 1.4 Billion shares!
Wow, that is a huge dillution!
Indeed in that case the discount really counts.
It will be interesting to see how the market will go on tomorrow. Any share price clear above 1.57 € could be a good argument for a quick sell.

• Sorry, my fault, you refering to something else i was thinking..

• @al sting: Your calculation is painful wrong: (1,06+1,06+2,63)/3=???

• If there should arise questions over my formular: (2,63€ + 2,63€ + 2 x 1,06€) / 3 = 2,46€.

• Oh, 17:40 is over, so its too late for me entering this play.

But the conditions are also not really good. It’s a pity that there is no possibility of oversubscription (sorry, I don’t know the english word) for share owners to aquire share options not used. Instead they choosed a “private placements to institutional and professional investors in The Netherlands and certain other jurisdictions”.

If invested today, two shares had to be aquired for a price of (today, average) 2,63€ to be able to get one new share for 2×1,06€ = 2,12 €. Average price for the three shares: 2.46€
2,46€ / 2,63 € = 93.5% –> Remains a discount of 6,5% remains.

Not a high security margin for a steady crumbling share.

I liked that kind of deals with the option of oversubscription. As the oversubscription sometimes were given in linear range to all interested investors, small investors got really more of it (relatively to their further shares) than big investors. But without right of oversubscriptions – hmmm.

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