Investors in Royal KPN NV, the Netherlands' largest telecommunications company, saw the value of their shares drop by more than a fifth Tuesday after it announced plans to issue €4 billion ($5.4 billion) in new shares to cut debt.
The announcement caps a bad year for the company, which posted a fourth-quarter loss of €162 million Tuesday, compared with a net profit of €176 million in the same period last year. Sales fell 3.3 percent to €3.38 billion.
The company's stock fell by more than 20 percent to € 3.21 as investors absorbed the news.
"It's regrettable, but you have to expect it when you make the kind of announcement we have today," said Chief Financial Officer Eric Hageman of the fall in the stock price on a conference call with journalists. "At a certain moment, you have to make a decision about what's best for the company in the long run."
The planned share issue of €4 billion is huge relative to KPN's size, nearly equal to its market value. In a sign of the importance of the offering's success to the KPN's future, top executives abruptly skipped the company's annual press conference planned in Amsterdam, preferring instead to travel to London to woo financial analysts.
The share issue will take form of a "rights issue," in which shareholders are given the first "right" to purchase shares in the new offering. Rights offerings only fail if there is serious doubt about the company's survival or strategic plans. It is not known what Mexican billionaire Carlos Slim — whose America Movil holds a 27.7 percent stake in KPN — plans to do.
KPN's recent round of woes began in 2011, a year in which it still repurchased €1 billion of its own shares and paid a dividend of €0.85 per share. In April of that year, while shares were still trading above €10, the company issued a profit warning, saying customers with smartphones in the Netherlands were ditching KPN's text message and voice offerings en masse for cheaper mobile Internet versions such as Skype and WhatsApp. CEO Eelco Blok announced plans, still ongoing, to lay off 5,000 workers, or about one in six.
When KPN tried to charge users extra for using Skype, Dutch consumers rebelled and Parliament quickly moved to make such surcharges illegal, adopting one of the world's first and strongest "net neutrality" laws.
KPN, Vodafone and Deutsche Telekom responded by hiking prices on their Internet data plans almost simultaneously — leading to an investigation for alleged price-fixing.
At the start of 2012 KPN announced a large write-down on the value of its business and its previous CFO resigned. Halfway through the year, it slashed planned dividends for 2012 from €0.90 per share to €0.35 per share.
Slim's Movil made an offer of €8 per share for a little more than 25 percent of KPN that summer, succeeding even though KPN management warned investors not to sell, saying it undervalued the company.
In December 2012, KPN paid the Dutch government an unexpectedly high €1.35 billion ($1.8 billion) in a bidding war to obtain frequencies for "4G," high-speed mobile Internet services through 2030. It slashed dividends further, saying it would now only pay €0.12 for 2012 and €0.03 in 2013.
The situation is reminiscent of KPN's near-bankruptcy in the early 2000s, when it overpaid for 3G mobile Internet licenses. It survived then only with the help of a €5 billion rights issue that was backed by the Dutch state. The company's share price fell from €70 in 2000 to around €2.
KPN's Hageman denied the company was in financial difficulties, but added that "if you look at the recent period, we've seen that our debt is rising, our results are falling, and credit rating agencies are extremely critical of KPN's financial situation."
The company said Tuesday it will keep the dividend at €0.03 dividend in 2014 before possibly increasing it again "subject to operational performance and financial position."