Bidding War

With Two Offers For T-Mobile USA, Deutsche Telekom Might Finally Unload a Troubled Subsidiary

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A rival offer by Sprint may fail due to competition concerns.
  • Why it matters

    Why it matters

    A rival bid to buy T-Mobile USA is raising the chances for its parent company Deutsche Telekom to divest its troubled subsidiary. A deal could also bring down prices on the U.S. wireless market.

  • Facts

    Facts

    • French firm Iliad offers $15 billion for 56.6 percent of T-Mobile USA.
    • Japanese-owned Sprint is said to have offered $32 billion for the whole of T-Mobile USA.
    • In 2011, a planned T-Mobile USA sale to AT&T for $39 billion failed over anti-trust concerns
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    Audio

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A $15 billion (€11.2) offer for a majority stake in T-Mobile USA, which is also being pursued by Japanese-owned wireless operator Sprint, could finally enable German telecoms group Deutsche Telekom to divest its U.S. subsidiary.

Despite skepticism about the bid by French firm Iliad, which is controlled by billionaire Xavier Niel, the competing offer could speed up sales talks between Sprint and T-Mobile, and offers an alternative if a deal with Sprint were to fail.

Deutsche Telekom is keen to leave the U.S. market. T-Mobile has struggled in the United States, where larger rivals Verizon Wireless and AT&T have benefitted from closer relationships to domestic smartphone makers Apple and Google, which owns the Android operating system.

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

Sprint, controlled by Japanese bank Softbank, and T-Mobile have been in negotiations for months about a takeover, which is said to be worth $32 billion or $40 per T-Mobile share.

Anti-trust issues are the biggest hurdle to the deal, which would reduce the number of operators to three in the U.S. wireless market dominated by Verizon Wireless and AT&T.

Deutsche Telekom, which owns the majority of T-Mobile USA after listing a part on a U.S. stock exchange in 2013, failed to sell its U.S. subsidiary in 2011 for $39 billion to AT&T over anti-trust concerns.

A combination of Sprint and T-Mobile USA, currently the number three and four on the U.S. wireless market, might face the same fate.

Analysts questioned the French bid, which is worth $33 per T-Mobile USA share, due to lower price and the fact that the offer was only for part of the U.S. firm but they also saw benefits.

“We are skeptical that T-Mobile and its shareholders, including Deutsche Telekom, will find this bid attractive,” Joseph Mastrogiovanni and Michael Baresich, analysts at CreditSuisse, wrote in a research note.

“However, it could put pressure on Sprint to move sooner rather than later,” the analysts were quoted as saying by Reuters.

While the Sprint bid faces potential antitrust hurdles, the French offer is seen as having a better chance of succeeding in this respect because Iliad does not own U.S. operations.

 

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Iliad’s Xavier Niel sees synergies in the market in the United States. Source: AFP

 

Niel, a self-made entrepreneur who started programming software at the age of 14, only wants to buy 56.6 percent of T-Mobile USA but the offer pushed up T-Mobile USA’s share price by 8 percent at the end of last week to $33.42.

It might be first sign of a bidding war.

“We are skeptical that T-Mobile and its shareholders, including Deutsche Telekom, will find this bid attractive. But it could put pressure on Sprint to move sooner rather than later.”

Joseph Mastrogiovanni, CreditSuisse analyst

Iliad said in a statement last week the offer was “indicative”, which means the price could be adjusted up or down, depending on negotiations and inspection of T-Mobile USA’s books.

There is also potential room to increase the offer as Iliad said it saw synergies worth $10 billion, if it were to buy the U.S. firm.

Neil, who founded low-cost telecoms operator Iliad in 1990 and defied the incumbents in the French telecoms market, wants to lower telecom costs in the United States and create synergies, sources close to the billionaire said.

U.S. wireless customers pay more than twice as much for transferring data using their phones than in France.

“When this kind of an opportunity arises, one has to seize it,” a person familiar with Iliad said.

Iliad investors were not convinced. Iliad shares have fallen more than 7 percent since the offer was officially announced on Thursday to €191.30 on Monday morning.

Iliad, which has a market capitalization of about €16 billion ($21.5 billion) compared to T-Mobile USA’s 27 billion, said it would fund a takeover by issuing debt and equity.

 

Translation and additional reporting by Gilbert Kreijger

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