Note Sprint-DT comments at end:
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April 19, 1999
Deutsche Telekom, TI Alliance Models Floated Ahead Of Tue
By ANGELA CULLEN
Dow Jones Newswires
FRANKFURT -- A number of models were floated Monday as to what form an alliance between Deutsche Telekom AG (DT) and Telecom Italia (TI) could take ahead of a joint press conference at 0930 GMT Tuesday in London.
Reports that the companies would fold their stock into a new holding company, 60% to 40% in Deutsche Telekom's favor, continued to feed market speculation that a giant merger is on the cards.
Analysts speculated that cooperation without capital participation is more likely.
The companies themselves would only confirm that they were examining the possibilities for a hypothetical industrial alliance.
But the question that intrigued market-watchers the most is why the German giant seems willing to jeopardize a long-standing relationship with France Telecom SA (FTE) for a hastily prepared venture with a company with which it has few ties, that could also prove impossible to pull off?
"It seems that (France Telecom Chief Executive) Michel Bon had very little prior warning of what (Deutsche Telekom Chief Executive) Ron Sommer was up to," said Nick Delfas, sector analyst at J.P. Morgan in London. "From now on, I think their relationship will be much less cordial than in the past," he said.
Despite assurances from Deutsche Telekom that a possible alliance with Telecom Italia would further strengthen its partnership with France Telecom, European sector-watchers believe the link-up with Telecom Italia will damage Franco-German telecom relations.
Heiko Bienek, analyst at Independent Research in Frankfurt, said one reason for Deutsche Telekom's move may be to keep the threat of German rival Mannesmann AG (G.MMN) at bay, they said.
"One of the reasons for a possible link-up between Deutsche Telekom and Telecom Italia is to keep Mannesmann from becoming too powerful," he said.
Bienek said he believes Deutsche Telekom only became interested in the Italian market when it became obvious that Mannesmann planned to benefit from Olivetti SpA's (I.OLV) hostile bid for Telecom Italia.
"I can't imagine that Deutsche Telecom was interested in Telecom Italia before Olivetti made its move," said Bienek. "It's a real stroke of genius how Mannesmann built up its position (in Italy)," he said.
In February, Mannesmann raised its stake in its Oliman joint venture with Olivetti to 49.9% from 37.5%. It later signed a contract to purchase Olivetti's 50.1% stake, provided Olivetti's bid for Telecom Italia is successful.
Olivetti is set to present its tender prospectus for Telecom Italia shares on Thursday.
"Mannesmann was underestimated for years," said Bienek.
Mannesmann said Monday that, despite the latest revelations about a possible Deutsche Telekom/Telecom Italia alliance, it's proceeding on the surmise that Olivetti will still be successful in its bid for Telecom Italia.
"Telecom Italia is a very difficult case that requires restructuring and rescuing," it said.
There's been no analysis on this subject, said Christoph Vogt, telecom analyst at M.M. Warburg bank in Hamburg.
TI Alliance Doesn't Fit With Deutsche Telekom's Global Plans
Vogt also doubts that the plan, to possibly create a $200 billion European telecom giant, meets Deutsche Telekom's ambitions to become a contender in a world league.
"I personally think this step is still too small," he said. "While Deutsche Telekom has a foot in the door in Asia, there's still holes in that market." He added that the German group also doesn't have a strong U.S. presence.
"The plan still lacks a large overseas partner," he said.
Deutsche Telekom wouldn't comment on reports that it's also set to enter the U.S. market.
An advance copy Monday of a report to be published in business weekly Manager Magazin on Friday said Deutsche Telekom is negotiating a takeover of U.S. telecommunications company Sprint Corp. (FON).
According to a report, Telekom Chairman Ron Sommer has been negotiating a deal with Sprint Chief Executive William Esrey for several weeks.
Deutsche Telekom currently holds 10% in Sprint as part of its Global One alliance with Sprint and France Telecom. France Telecom also holds a 10% stake in Sprint.
-By Angela Cullen
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