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Friday, 31 August, 2001, 12:23 GMT 13:23 UK
KPN-Belgacom merger talks collapse
A KPN shop in Amsterdam
KPN has built itself up into a diversified telecoms giant
Shares in Dutch telephone firm KPN have plunged by more than 20%, after it called off plans to form a Benelux-wide telecoms giant with Belgium's Belgacom.

In a joint statement, the two companies said that, while the talks had been "friendly and constructive", the current market environment in the sector had been "a complicating factor".

The failure comes as a particular blow to KPN, which has been struggling to contain its 23bn euro (14.5bn; $21bn) debt mountain.

KPN's shares had already lost 90% of their value since March last year, as the firm has proved unable to stitch together either a debt-rescue package or a merger.

Short of a surprise takeover offer for the firm, unlikely in the current gloomy market climate, KPN may be forced to appeal to the Dutch state in order to meet its immediate debt-financing requirements.

Benelux bartering

Talks between KPN and Belgacom have dragged on for the past two months.

A KPN mobile user
KPN is heavily focused on the mobile market

KPN's interest in the smaller Belgian firm, which is controlled by Singapore Telecommunications and US carrier SBC Communications, was to bolster its financial stability.

KPN built up its towering debts after spending heavily on third-generation (3G) mobile phone licences in the Netherlands and Germany.

It also has a minority stake in the group that is building the UK's fifth mobile phone network after acquiring a 3G licence last year for 4.38bn.

Belgacom, meanwhile, saw KPN as a rapid way of gaining access to a Europe-wide telecoms network, with particular strength in mobile phones.

Although the strategic logic was strong, the deal was imperilled by KPN's plummeting shares, which have heavily underperformed their European peer group.

With its current share price, KPN would only have controlled 40% of the merged group, despite being a far larger company.

Shares in Belgacom barely budged on the news, indicating that investors thought the deal would have been solely to the benefit of the Dutch company.

Cash crunch

The Dutch state, which controls just over one-third of KPN's equity, may have to help the firm meet the 5bn-7bn euros in repayments it faces next year.

In the longer term, the company may have to sell off some of its assets, in particular the various stakes it holds in international operations.

During the late 1990s, KPN was one of Europe's more acquisitive telecoms firms, and now serves 25 million customers worldwide.

In July, the firm agreed to sell its 44% stake in Hungary's Pannon GSM mobile phone operator to Norway's Telenor.


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See also:

27 Aug 01 | Business
KPN denies Belgacom deadline
01 Jun 01 | Business
KPN shares nosedive
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KPN puts assets up for sale
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Hutchison forges mobile alliance
05 May 00 | Business
Telefonica merger called off
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