VIENNA (Reuters) - Carlos Slim plans to use Telekom Austria (TELA.VI) as a base to build a European telecoms network after sealing an eleventh-hour deal with the Austrian state to take control of the company.
Slim's America Movil (AMXL.MX) will invest up to 1 billion euros ($1.38 billion) in Telekom Austria via a rights issue, on top of spending as much as $2 billion to buy out minority shareholders in a mandatory public offer.
The deal represents the first successful acquisition for Slim in Europe, where he has invested more than $4 billion in the past two years building stakes in Telekom Austria and Dutch KPN (KPN.AS), which subsequently rejected a full takeover offer.
America Movil - which is controlled by Slim, one of the world's richest people - said it would spend the money from the rights issue on acquisitions in new markets, infrastructure, research and development, new products and services.
The Austrian OIAG state holding company, which signed a co-ownership deal with America Movil late on Wednesday night, said the partnership set the course for a "massive future growth path for Telekom Austria in CEE (central and eastern Europe)".
Telekom Austria is in seven CEE countries outside Austria but has restricted itself in recent years to modest acquisitions in markets where it is already active as it battled fierce price competition at home while trying to limit its debt leverage.
Shares in the former state monopoly jumped 6.7 percent to 7.10 euros on Thursday after America Movil said it would offer 7.15 euros per share for the outstanding stock in an offer to be launched in the next few weeks.
The shareholders deal combines the OIAG's 28 percent of Telekom Austria with Slim's 27 percent in a syndicate holding structure. Slim will fund the takeover offer, and the OIAG will reduce its stake to 25 percent in the rights issue.
The 10-year agreement promises to protect Austrian interests by giving the OIAG veto rights as well as the appointment of the chief executive and chairman, keeping the company's headquarters in Austria, and maintaining a Vienna stock market listing.
It was agreed after a turbulent meeting of the OIAG's supervisory board that was inquorate for 12 hours because of a boycott by labor representatives, who criticized its lack of explicit job guarantees, among other things.
"The Austrian state will lose its influence over one of its most important infrastructure companies," the influential head of Vienna's Chamber of Labour, Werner Muhm, said in a statement.
"Everything, including the question of how much will be invested in Austria and how... will lie in the hands of a private company that is exclusively focused on profit and is based on another continent."
America Movil is facing increasing regulation and competition in Latin America, especially in its home market of Mexico, where it controls most of the market.
Its market capitalization of $45.4 billion dwarfs Telekom Austria's $4.1 billion.
"Diversifying into tiny Telekom Austria is probably a good financial investment but hardly enough to offset the more general malaise," Berenberg telecoms analysts wrote in note.
The shareholders agreement, which has not been published, does not specify what the billion-euro proceeds from the rights issue will be spent on, according to people who have seen it.
America Movil said they would bolster the company's finances and place it "to benefit from investment opportunities arising in the countries in which it currently operates and in emerging markets in Central and Eastern Europe".
"It will also contribute to better position Telekom Austria as a more relevant player in the European telecommunication markets and to be in a position to benefit from growth opportunities in the region," CEO Daniel Hajj said.
America Movil's chief financial officer, Garcia Moreno, will hold a news conference at Telekom Austria at 1330 GMT along with the company's chairman and deputy chairman.
Telekom Austria's net debt of 3.7 billion euros after an expensive Austrian frequency auction was 2.9 times earnings before interest, tax, depreciation and amortization (EBITDA) at the end of 2013, giving it little scope for acquisitions.
Analysts welcomed the potential the rights issue would give the company to deleverage, although some were concerned at the lack of a clear statement of what the funds would be used for.
"Proceeds could be used to fund a mix of deleveraging, domestic fiber, and CEE acquisitions. Depending on the mix and the targets, this could increase or diminish the value of the company," wrote JP Morgan analyst Hannes Wittig.
Analysts said the offer looked generous, even at a modest 11 percent premium to the six-month moving average, valuing Telekom Austria in line with its peers at about 6.1 times EBITDA despite its higher risks in CEE and relatively low cash flow.
"We have the sense that AMX will have set the offer price at such a level as to manage the free float," said telecoms analysts at Jefferies, noting the commitment to maintain a Vienna listing.
Guenther Schmitt, a funds manager at Raiffeisen who manages around 2.9 million Telekom Austria shares, said there was no need to take the 7.15 euro offer, which should now provide a support for the share price.
"Since the financing is secured and there is a turnaround in the Austrian market and prices are rising, there is a better basis for the company to develop more positively again," he said. "I see no reason to accept this offer." ($1 = 0.7231 Euros)
Reporting by Georgina Prodhan. Editing by Jane Merriman and Elaine Hardcastle