Deutsche Telekom To Sell Sprint Stake
Full Coverage
Telecom Industry News
By Melanie Cheary
FRANKFURT, Germany (Reuters) - Deutsche Telekom AG (NYSE:DT - news) said Tuesday it will sell its stake in Sprint for a hefty profit and use the cash for acquisitions and partnerships after news MCI has concluded a deal to buy Sprint.
Telekom said it plans no counter offer for U.S. telecoms giant Sprint Corp (NYSE:FON - news) and expects to sell its 10 percent stake for 21 billion marks ($11.5 billion), making a profit of 18 billion marks ($9.8 billion).
A Telekom spokesman raised his initial 16.8 billion marks estimate of the proceeds from the Sprint sale, saying that earlier he had not had all the necessary documents.
''Telekom could make a massive profit,'' said BHF-Bank telecoms analyst Michael Schatzschneider, adding that Telekom could then look for another U.S. partner.
MCI Worldcom announced earlier it would buy Sprint for $129 billion, including $14 billion in debt and preferred stock, making it the most expensive corporate takeover ever.
Excluding debt and stock, MCI is paying $115 billion with Telekom's 10 percent stake worth $11.5 billion -- the value it itself puts on the holding.
Analysts were not surprised by Telekom's willingness to pull out of Sprint and said the capital raised would pad a rather bare war chest and help Telekom back another American alliance.
They said the group could only have lost by making a counter bid for Sprint.
''(Buying Sprint) would raise Telekom's bank debt and they are very proud that they have reduced their bank debt...They wouldn't have any alternative other than to sell it and they could get about 20 billion marks ($10 billion),'' said Merck Finck & Co telecoms analyst Theo Kitz.
Duesseldorf-based WestLB telecoms analyst Holger Grawe said that Telekom would laugh all the way to the bank having only paid $1.5 billion, at the time, for its Sprint stake.
France Telekom, which also holds 10 percent in Sprint, said it was mulling the sale of its stake, which could yield a capital gain of $7.5 billion.
ANOTHER U.S PARTNER
Analysts say a counter bid to MCI's offer by Telekom had been very unlikely because the small synergy benefits from acquiring Sprint would be insufficient to justify the cost.
Telekom's disposable funds are rather reduced after its $11.5 billion purchase in August of British mobile phone operator One2One, which used up the capital the former state monopoly raised by floating a second tranche of shares.
But to be the global telecoms player it aims to be, Telekom has to have a strong North American foothold.
''It is not an alternative to pull out of the U.S. You can't survive without a U.S. partner if you want to be a global telecoms group,'' Kitz said.
Analysts urged Telekom to move a little faster if it wanted to stake its claim as a world player.
''Deutsche Telekom is just playing catch-up and that's the trouble. The pace of consolidation is moving so fast that each time they formulate a new strategy someone else has got there before they do,'' said John Tysoe, London-based telecoms analyst at WestLB Panmure.
But analysts said the money raised from selling the Sprint stake would be insufficient for an adequate North American investment and Telekom would need to raise additional funds.
This could be done by the German group floating its mobile phone and Internet divisions from which it could raise about $100 million, analysts say.
Some analysts see Telekom eyeing Sprint's Internet business with the U.S. group expected to be forced to sell some of it due to regulatory reasons if its MCI takeover is to go ahead.
One analyst, who declined to be named, said that Telekom is eyeing U.S. cellular phone group VoiceStream Wireless.
Telekom shares barely reacted to news of the sale and at the close was 1.68 percent higher at 39.83 euros.
GLOBAL ONE AND FRANCE TELEKOM
But a question mark hangs over the money-losing Global One international joint venture between Sprint, Deutsche Telekom and France Telecom (NYSE:FTE - news). France Telecom and Deutsche Telekom each hold a quarter of Global One while Sprint owns 50 percent.
A Deutsche Telekom spokesman said that a decision on Global One would only be taken once MCI's acquisition of Sprint was completed. Then all parties concerned would discuss and redefine their Global One interests, he said. |
