Late last week, KPN announced the start of the share repurchase program for an initial amount of up to 500m euros ($611.6m) of KPN shares, amounting to roughly 3% of its outstanding share capital. The Dutch carrier intends to cancel any shares it acquires.

CEO Ad Scheepbouwer said: In line with our firm commitment to deliver shareholder value, our recent 2003 results announcement stated that KPN has no intention of holding unutilized cash balances. Today we are pleased to announce the next step in fulfilling this commitment.

The share buy-back was hinted at last month when the carrier reported improved financial results for 2003. It posted a net profit for 2003 of 2.73bn euros ($3.42bn) compared to a net loss of 9.542bn euros ($11.98bn) for 2002. Revenue was 12.21bn euros ($13.54bn).

At that time, the carrier also revealed it would issue a dividend for the first time since 2001. KPN said it would pay a dividend of 0.13 euros ($0.16) per share this year. This was on top of the 0.12 euros ($0.15) it announced earlier in the year. KPN also said it would reinstate an interim dividend later this year, for the first time since 2000.

The improved results were an impressive turnaround for the Dutch carrier, after it ran into financial difficulties in 2001 when it paid too much for acquisitions and mobile phone licenses. It managed to stave off insolvency by issuing shares, cutting jobs, and selling subsidiaries to cut debt. At the end of 2003, net debt was 8.3bn euros ($10.4bn), down from 9.4bn euros ($11.8bn) in the third quarter, and over 20bn euros ($25.1bn) two years ago.

With the announcement of the share buyback program, KPN hopes to dampen continued market speculation that it is still looking at a takeover of mmO2.

Last month, the board of mmO2 rejected an offer thought to be roughly 9.5bn pounds ($17.7bn). KPN had apparently offered 110 pence ($2.05) per mmO2 share, mostly in stock.

Indeed, the Dutch carrier seems to have resigned itself to not acquiring mmO2, ruling out a hostile bid. However, it did leave the door open when it said it reserved the right to make an offer if the mmO2 board were to agree to recommend a bid by KPN, or if another company were to announce firm intentions to make a rival offer.

That said, some analysts believe the buy-back does not rule out a new bid for mmO2, and will no doubt lift KPN’s share price in the long term, and could facilitate an all-stock acquisition offer.

There is no doubt that KPN retains enough financial flexibility to launch a new offer should another suitor appear, despite its share buy-back program and the dividend pay-outs. Other companies thought to be interested in acquiring mmO2 (formerly BT Cellnet) include NTT DoCoMo, Hutchison Whampoa, Telefonica Moviles, and Telecom Italia Mobile.

This article is based on material originally published by ComputerWire