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.
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
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)