LONDON/BERLIN Aug 31 Deutsche Telekom's (DTEGn.DE) hopes of ending its chequered U.S. adventure with a speedy $39 billion sale to AT&T (T.N) were dashed on Wednesday when the U.S. government sued to block the deal. [ID:nN1E77U0QO]
The German telecoms company for years was looking for a way out of its T-Mobile USA business that had long ago ceased to be a source of growth -- and the AT&T deal, announced in March, seemed like the answer to its prayers. [ID:nN20237333]
The expected $25 billion cash proceeds have already been earmarked to pay down debt, buy back 5 billion euros' ($7.2 billion) worth of shares and underpin a generous dividend payout strategy.
Now Deutsche Telekom faces a long delay at best, and may be driven back into the arms of Sprint Nextel (S.N) -- a less suitable partner for whom T-Mobile USA would not be worth nearly as much now as it was to AT&T in March.
"We believe that the likelihood for a good and fast U.S. solution has decreased massively," DZ Bank analyst Joeri Sels wrote in a note, cutting his target price to 10 euros from 12 euros and demoting the stock to "soft buy" from "buy.'
Deutsche Telekom investors welcomed the deal, which earned praise for Chief Executive Rene Obermann, whose main foreign adventure to date, the acquisition of a large stake in Greece's OTE (OTEr.AT), resulted in a large writedown.
The plan was to retrench the company in its German heartland while gaining the financial flexibility to strike deals closer to home, for example in Poland or Serbia.
Now Deutsche Telekom may find itself stuck with the United States' smallest mobile business with its declining customer numbers, and lacking its own plan for upgrading its networks to cope with new, data-hungry services.
"T-Mobile USA's current lack of a clear path to 4G technology will be a significant issue for customers going forward," wrote Raymond James analyst Frank G. Louthan. "We believe this will put T-Mobile USA customers at a significant disadvantage in about 18 months, eradicating whatever competitive advantages the number 4 carrier may have benefited from in the past."
Analysts said that any merger with Sprint, the second-smallest U.S. mobile carrier, would be worth far less than the AT&T deal because there would be fewer ways to reduce redundant costs, while T-Mobile USA's value has fallen since the AT&T agreement was struck.
Deutsche Telekom in any case long resisted the idea of a deal with Sprint, mainly because the companies use incompatible technologies, and Sprint was burned by the difficult acquisition of Nextel in 2005.
"Sprint went into a kind of nosedive immediately after, and really only came out of that nightmare five or six years later. They probably wouldn't be racing into another merger or acquisition," said Mike Roberts, principal analyst with Informa Telecoms & Media. "T-Mobile has been struggling for a number of years and the AT&T deal was obviously the way out."
($1 = 0.695 Euros) (Additional reporting by Jasmin Melvin in Washington. Editing by Robert MacMillan)