The boards of Deutsche Telekom and VoiceStream on Sunday night approved the German company’s $50bn takeover bid for the US mobile operator. This came despite mounting opposition to the bid in Washington, where Democrat senators have led efforts to prevent state-owned companies from buying US phone networks.
Deutsche Telekom argues that the German government’s shareholding will fall to 45 percent after the deal and is relying on heavy lobbying by the European Commission to reduce US political resistance. The deal sets a world record price per subscriber for the purchase of a mobile company. Ron Sommer, chairman of Deutsche Telekom, was due to launch a charm offensive yesterday to try to convince sceptical investors he is not overpaying.
Mr Sommer is expected to emphasise the number of potential customers for VoiceStream, which has near national coverage in the US, rather than its current subscriber numbers, which represent just four percent of the US market. On that basis, Deutsche Telekom believes its offer of 3.2 shares and $30 in cash – a total of around $195 – per VoiceStream share is relatively cheap compared with earlier telecom takeovers. The deal values VoiceStream’s potential customers, known as Points of Presence (POPs), at around $265 each compared with three times that for Vodafone’s takeover of Mannesmann.
VoiceStream is also among the fastest growing mobile operators with the number of current subscribers forecast to rise from 2.3m in April to nearly 4m by the end of the year. Nevertheless, Deutsche Telekom shares fell 9 percent last week as news of the VoiceStream price emerged. Deutsche Telekom could come under further pressure as investors realise the degree of additional spending required.
The German phone group has agreed to inject $5bn in cash as soon as the deal receives anti-trust clearance next month to fund VoiceStream’s bid for third generation licences in the US. If the deal collapses after that point, Deutsche Telekom’s initial cash investment will be converted into a 10 percent shareholding in VoiceStream. In the meantime, there is no “collar” to protect Deutsche Telekom from having to renegotiate the price if the shares fall further, but it has received backing from more than 50 percent of shareholders.
These include Hutchison Whampoa, the Hong Kong group with a 23 percent stake, and Goldman Sachs, which has been advising VoiceStream as well as profiting from the increase in value of its five percent stake.
John Stanton, chairman and chief executive of VoiceStream, will remain in charge of Deutsche Telekom’s US mobile activities, which will eventually be absorbed into T-Mobile, Deutsche Telekom’s European wireless arm, after it floats later this year. Reuters