Wall Flower

Deutsche Telekom Forced to Redial on T-Mobile US Sale

Deutsche Telekom Bloomberg
T-Mobile in the U.S.A.
  • Why it matters

    Why it matters

    Should Deutsche Telekom fail to find a buyer for its U.S. unit, the ongoing losses could weigh on the company’s overall financial results.

  • Facts

    Facts

    • Iliad, a French Internet and mobile carrier, withdrew a $19.5 billion bid for T-Mobile US.
    • Deutsche Telekom has tried and failed three times in recent years to sell the business.
    • U.S. regulatory concerns about the loss of one of four national carriers are blocking a sale.
  • Audio

    Audio

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History is repeating itself at Deutsche Telekom. For the third time in three years, a bidder has walked away from buying the German telecom operator’s faltering U.S. subsidiary, T-Mobile US.

French telecoms operator Iliad withdrew its bid late Monday, saying Deutsche Telekom and T-Mobile US showed no interest. The bid for 67 percent of the U.S. subsidiary was worth $19.5 billion (€15.4 billion), based on Iliad’s offer of about $36 per T-Mobile US stock and 807 million T-Mobile US shares outstanding at the end of June.

Although investors had not counted on a successful bid from French billionaire Xavier Niel’s holding company, Deutsche Telekom shares fell as much as 0.8 percent to a one-year low of €10.80.

“At first glance, the news from yesterday is bad for Telekom, for the equity price but also for credit default swaps, for the bonds,” said Amir Darabi, an analyst Bayerische Landesbank in Munich.

Disappointing perhaps, but it was not earth-shattering for Deutsche Telekom, Mr. Darabi said.

“I don’t see a real risk in this issue, the market already expected that Iliad will end its pursuit of T-Mobile,” Mr. Darabi said. “This is what the market already expected because Deutsche Telekom always mentioned that they would accept an offer above $40 per share, and Iliad only offered $36.”

In 2012, T-Mobile US had a $7.3 billion loss, after a $4.7 billion loss in 2011. Last year, it reported a $35 million profit.

Deutsche Telekom, which declined to comment on Iliad’s withdrawal, has been keen to leave the U.S. market. T-Mobile, the fourth-largest U.S. player, has struggled in the United States, where larger rivals Verizon Wireless, AT&T and Sprint have benefitted from closer relationships to domestic smartphone makers Apple and Google, which owns the Android operating system.

T-Mobile US recently improved its financial results, but its performance over the past three years has been poor and costly. In 2012, T-Mobile US had a $7.3 billion loss, after a $4.7 billion loss in 2011. Last year, it reported a $35 million profit.

In 2011, Deutsche Telekom failed to sell T-Mobile US for $39 billion to AT&T amid antitrust objections. Two months ago, Sprint’s offer for T-Mobile US foundered on the same regulatory hurdle. Last year, Deutsche Telekom listed a 33 percent stake of T-Mobile on the New York Stock Exchange, where T-Mobile shares fell 2.5 percent to $26.92 on Monday.

U.S. antitrust regulators have expressed concern that a merger of one the top four telecoms operators would limit competition in the United States.

 

Weaker US Profitability-01-Deutsche-Telekom-T-Mobile-USA

 

Some analysts still believe a sale will eventually take place.

“There always will be a strategy to sell T-Mobile because that’s not their core market and next year we will have  auctions for the new frequencies in Germany,”  Mr. Darabi said. “Deutsche Telekom might try to sell T-Mobile next year for that reason.”

Ulrich Trabert, analyst at German bank Metzler in Frankfurt, still hopes for a merger at some point in the future with Sprint, when regulatory concerns may have lessened.

“Deutsche Telekom’s management knows exactly what the long-term perspective of T-Mobile is,” Mr. Trabert said. “There is a limitation to growth determined by the financial capabilities of the business.”

 

Gilbert Kreijger is an editor for Handeslblatt Global Edition and has covered companies and markets across Europe. Lára Hilmarsdóttir has reported for several publications. To contact the authors: Kreijger@handelsblatt.comL.Hilmarsdóttir@vhb.de 

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