Updated May 8, 2012, 8:26 p.m. ET.

Mexico's Carlos Slim Makes Surprise Advance on Europe .

By DAVID LUHNOW in Mexico City and ARCHIBALD PREUSCHAT in Amsterdam

Mexico's Carlos Slim made his first big move on Europe, offering $3.4 billion to raise his stake in ailing Dutch phone company Royal KPN KPN.AE +0.97%NV.

The bid sparked speculation that the world's richest man could embark on a reverse conquest of Europe, snapping up assets that have been hammered by its financial crisis and taking on long-time Spanish rival Telefónica SA TEF +3.08%in its own backyard.

Reuters

Carlos Slim wants a 28% stake in ailing Dutch telecom KPN.

Mr. Slim's América Móvil AMX -0.16%SAB, the largest wireless company in Latin America, laid out an offer late on Monday to boost its holding in the former Dutch monopoly to 28% from 4.8%, offering €8 ($10.44) a share, a 24% premium to Monday's closing price.

KPN shares soared on Tuesday as investors speculated that Mr. Slim might move to take outright control of the company. KPN's shares rose 17% Tuesday in Amsterdam to €7.58, approaching Mr. Slim's offer.

Under Dutch law, a shareholder who holds 30% or more in a company is required to make a tender offer to all remaining shareholders.

Many investors questioned the Mexican firm's decision to enter the troubled European market, where growth is weak, competition fierce and regulation heavy. América Móvil's American depositary shares marked one of their sharpest declines in years Tuesday, falling 9.6% to $25.53 in 4 p.m. trading on the New York Stock Exchange and erasing about $9 billion from the company's market value.

Others, however, gave the benefit of the doubt to a man seen by many as Mexico's answer to Warren Buffett, saying the purchase fits Mr. Slim's traditional playbook of buying assets in difficult times. Before Tuesday, KPN's market value had tumbled 40% in the past year, among the steepest declines in European telecommunications shares.

"Slim is very good at buying good assets and management in a depressed market," said Damian Fraser, head of equities for Latin America at investment bank UBS. "It's quite a cheap stock, and gives him knowledge and a toehold into Europe."

The move into Europe by Mr. Slim, whose net assets are estimated at $69 billion, brings his longtime Latin America rivalry with Telefónica into the Spanish company's own backyard.

América Móvil and Telefónica are Latin America's No. 1 and 2 telecom companies, competing fiercely in markets like Mexico and Brazil. KPN's holdings include E-Plus, a German mobile-phone carrier that competes with Telefónica's O2, and a smaller wireless company in Spain called Simyo.

Mr. Slim's first significant attempt to expand in Europe was thwarted by Telefónica when the Madrid-based company outbid the Mexican company to buy a minority stake in Telecom Italia TI -0.09%in 2007.

KPN said Mr. Slim's move, which would be subject to Dutch regulatory approval, "substantially" undervalued the Dutch company and that it would seek further clarification of América Móvil's intentions.

América Móvil said it wasn't looking to raise its holding in KPN above 28% and was looking forward to a "lasting relationship" with the company's management and shareholders.

KPN's profit has been under pressure, especially in its home market, as customers have switched from traditional voice calls and text messages to competing Internet services like WhatsApp, a smartphone messaging service; or Microsoft Corp.'s MSFT -0.18%Skype, which offers free calls via the Internet.

The Mexican company has 246 million mobile subscribers in 18 countries, but has started running into limits on its breakneck growth, prompting it to look overseas for opportunities. In Mexico, it already has 70% of the market, and there are almost as many cellphones in Mexico now as people, translating to slower subscriber growth.

Carlos García Moreno, América Móvil's chief financial officer, said the company looked around Europe and considered KPN, which has fixed-line and mobile holdings in its key markets of Netherlands, Belgium and Germany, as best suited for investment.

Some América Móvil shareholders worried that the investment—while likely a good price and only a small part of América Móvil's overall market value—signaled the start of a buying spree in Europe that would dilute the Mexican company's ability to return cash to shareholders. América Móvil generates roughly $1 billion in free cash a month, significantly more than its peers, analysts said.

"We had hoped the company had given up expanding into Europe and that it would return the excess cash to shareholders. It seems this is not the case," Carlos Sequeira, an analyst at Brazilian investment bank BTG Pactual, wrote to clients. He downgraded his rating on América Móvil to "neutral" from "buy."

Other analysts said Mr. Slim likely was keeping his options open to use the purchase as a strategic move into Europe or simply a good investment. Even if Mr. Slim decides that an outright purchase is too expensive down the road, he can make a decent return, given KPN's annual dividend yield of about 12%, said UBS's Mr. Fraser. "There is little downside," he said.

The billionaire has also proved the market wrong on numerous occasions. In the early 2000s he bought into Argentina's mobile market at the height of the country's financial crisis and then Brazil's when many analysts thought the country might default on its debt. In both cases, the purchases paid off handsomely.

"Investing into the current macro environment in Europe is reminiscent to us of some of the deep value investments América Móvil made to assemble its Latin American footprint about 10 years ago," Andrew Campbell, an analyst at Credit Suisse, said in a note to clients.

The son of a Lebanese immigrant who created a thriving retail company by buying assets during the Mexican revolution, Mr. Slim has long mimicked his father's business acumen by spotting undervalued assets, particularly during times of crisis.

Part of his empire, which stretches from telephones to mining, was built during Mexico's repeated currency devaluations in 1976 and 1982, when many business owners sold on the cheap.

Mr. Slim entered the phone business in 1990, when he bought Mexico's state telephone monopoly, Teléfonos de México SA. He has since whipped it into shape and defeated challengers by using the company's existing network to charge high prices to complete calls and delaying attempts at competition through Mexico's Byzantine courts.

But even in Mr. Slim's home market, his growth has become increasingly limited. As the world's richest man, he has come under greater scrutiny by regulators and politicians. Last year, Mexico's Supreme Court ruled that his company no longer could ignore the rulings of the telephone regulator while it challenged them in court. That forced his cellphone company to dramatically lower interconnection rates to rivals.

Mr. Slim's interest in the ailing KPN prompted speculation among some investors that the Mexican company could swap assets with Telefónica, giving the Spanish company E-Plus in Germany in exchange for a Telefónica asset in Latin America or elsewhere.

"The most obvious place to create value within KPN is through the sale or merger of its subscale German business with the assets of Telefónica," Bernstein Research said in a note. But with Telefónica facing increased European regulation and a crippled Spanish economy, "it is hard to see how Telefónica can pay in cash to access the incremental synergies that would result from that sort of combination," Bernstein said. Instead, an asset swap could be another way out, the firm wrote.

—Anthony Harrup and Laurence Iliff in Mexico City contributed to this article.
Write to David Luhnow at david.luhnow@wsj.com and Archibald Preuschat at archibald.preuschat@dowjones.com

Carlos Slim Offers $3.4 Billion to Raise Stake in Netherlands' KPN - WSJ.com