Taking Stock

Despite Failing To Sell T-Mobile U.S., Deutsche Telekom Shares Still in Demand

  • Why it matters

    Why it matters

    A failed merger between T-Mobile US and Sprint has German telecommunications giant Deutsche Telekom reconsidering its options. Both T-Mobile US and parent Deutsche Telekom remain good buys for investors.

  • Facts

    Facts

    • T-Mobile US’s share price dropped sharply after merger negotiations with Sprint failed.
    • The merger failed partly because of the FCC’s opposition to reducing the US mobile communications market from four to three providers.
    • Both Deutsche Telekom and T-Mobile US are doing well financially and stand to benefit from a spinoff.
  • Audio

    Audio

  • Pdf

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The first reaction was nothing less than shock. After reports that merger talks with competitor Sprint had broken down, large numbers of investors sold off their shares in the American mobile communications company T-Mobile US in the middle of last week.

Within days the share price had fallen by 10 percent, to below $30 (€22.46), where it has remained. The decline was understandable, since speculation over a takeover had initially pushed up the price of T-Mobile shares, which were trading at about $34 in early August. Deutsche Telekom, which holds about two-thirds of shares in the US company, also lost ground. Its share price had dropped by about 5 percent within a week and has remained under €11 since then.

The turmoil in the markets has now given way to a levelheaded view of events. It is clear that a shakeup in the US mobile communications market is not happening in the medium term because the Federal Communications Commission continues to insist on four providers. A merger of the third and fourth-largest market players, Sprint and T-Mobile US, would have left only three companies standing.

Until recently, it was rumored that Sprint intended to offer up to $40 a share for T-Mobile. Synergy effects were cited as justification for the markup. It is questionable whether another prospective buyer from the US cable industry or US satellite provider Dish will offer a similarly high price. A $15 billion cash offer by French low-cost telecommunications provider Iliad seems to be off the table. It’s too low for Deutsche Telekom CEO Tim Höttges.

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