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BellSouth aims for E-Plus
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December 10, 1999: 5:12 p.m. ET
Co. to exercise option, use $9.4B loan, to control German mobile-phone company
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NEW YORK (CNNfn) - BellSouth Corp., through a joint venture with a Dutch phone company, plans to exercise its right to take control of Germany’s No. 3 mobile operator E-Plus Mobilfunk, stepping in the way of France Telecom’s recent takeover plan.
As part of the complex arrangement, the Atlanta-based BellSouth, which already owns 22 percent of E-Plus, will receive a loan for $9.4 billion from Royal Dutch KPN Telecom as they form a new joint venture in Europe. BellSouth is not putting up any cash to pay for its joint venture with KPN.
In October, France Telecom said it would buy most of E-Plus for $9.3 billion from its other owners, the German utilities Veba and RWE and the British cell-phone powerhouse Vodafone AirTouch Plc. Veba is a 60 percent owner of E-Plus, while Vodafone holds about a 17 percent stake.
But BellSouth, one of the founding members of a three-way alliance behind E-Plus, has the first right-of-refusal to buy total control, and it announced it will exercise that right through its KPN alliance.
KPN plans to convert the loan into a 77.5 percent share of BellSouth GmbH, a holding company that will own and operate E-Plus. Following the closing, BellSouth and KPN will share control of E-Plus.
BellSouth’s move underscores the complex multi-national grappling for pieces of Europe’s explosive market for mobile-phone services, which has spurred a consolidation wave.
Vodafone is bidding a record $143 billion in an unsolicited offer for the German telecom and engineering firm Mannesmann AG. France Telecom, which had been hoping for an entrée into the hot German cell-phone market, said Friday it is reviewing the terms of BellSouth’s right of refusal. Losing E-Plus could be a blow to the French France Telecom, which saw its move into Germany as a counterstrike following the breakdown of its alliance with former partner Deutsche Telekom.
In a sign that it found its European partner, BellSouth will effectively commit a total of roughly $17.4 billion to its partnership with KPN. BellSouth said it agreed to make up to $3 billion of loans to KPN and will consider another investment of $5 billion.
In exchange for the $3 billion in loans, BellSouth will receive warrants to buy an extra 52 million shares of KPN. KPN plans to use those loans to make more wireless investments in Europe.
BellSouth’s original investment in E-Plus has exploded in value since it was formed six years ago.
"Our initial $150 million investment in E-Plus, currently valued at $2.4 billion, has now been turned into a $7.8 billion asset,” F. Duane Ackerman, Chairman and CEO of BellSouth, said.
"This is great news for BellSouth shareholders,” Ackerman added. Shares of BellSouth (BLS), the nation’s third-largest Baby Bell and one of the most widely held U.S. stocks, was down 3/16 to 47-1/16 shortly after 3:30 p.m. ET, Friday.
Analysts and executives said KPN has also found a key partner for expansion in Europe.
"We are convinced that we have found in BellSouth an experienced partner in modern telecom services with a progressive attitude to new developments,” said Wim Dik, KPN’s chairman and CEO.
"This is a good deal for KPN. It significantly increases the company's European wireless presence," analyst Stuart Birdt of Bear Stearns said. "It's very disappointing for France Telecom, effectively squashing its ambitions in Germany.”
E-Plus is seen as a prize because of the scope of growth in cellular subscribers in Germany with what is viewed as a comprehensive network.
"The German wireless market is the most promising growth market in Europe,” Gary Forsee, BellSouth’s executive vice president and chief staff officer, said during a conference call Friday morning.
BellSouth estimated that only 24 percent of Germany’s adults use cell phones, making that country the least penetrated for mobile-phone use among Europe’s top 10 markets.
The Baby Bell has also been aggressive in expanding into Latin America, particularly Brazil, which will still be BellSouth’s highest priority internationally, said a company spokesman. 
-- from staff and wire reports
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