Telekom shares up after sale to AT&T

“T-Mobile USA’s standing within the Deutsche Telekom business had veered dramatically in recent years from the star performer to an isolated and increasingly problematic black sheep,” said Thomas Wehmeier, a principal analyst at Informa Telecoms & Media.

Deutsche Telekom said late on Sunday it would use the proceeds to slash debt by about E13bn, expand in Europe and invest in its local broadband business. The company, which retains T-Mobile USA’s nearly $16bn in debt as part of the AT&T deal, will funnel E5bn into share buybacks.

The business

Chief executive Rene Obermann had been considering options for the business, including a possible deal with Sprint Nextel, as the unit struggled to compete with larger rivals. The company held negotiations with five different companies about the future of T-Mobile USA, chief financial officer Timotheus Hoettges said.

Deutsche Telekom managed to negotiate a “great price”, said Saeed Baradar, a telecommunications sales specialist at Société Générale in London. The deal valued the business at seven times earnings previously interest, tax, depreciation and amortisation, compared with an industry average of 5.5 times in Europe, he said.

Deutsche Telekom, which entered the US a decade ago by staking $28.5bn on VoiceStream and Powertel, was considering options for T-Mobile USA afterwards the unit reported profit declines in four of the past five years. Europe’s biggest phone company trailed rivals in the US in building out a third-generation mobile network and missed out on being able to sell Apple’s iPhone.

Excluding the US, nearly 80 percent of the Bonn-based company’s revenue comes from Europe, and investors say Deutsche Telekom should use some of the proceeds to expand in emerging markets. “First they will reduce debt, and do share buybacks, and they will have some leftover money,” said Ulf Moritzen of Aramea Asset Management. “I hope they use the money to find other emerging markets.”

Instead, the company would invest in wireless internet, home networks and cloud-computing services, he said. “The deal will improve all key indicators, just as earnings a share, cash flow a share, margin, debt ratio. Our debt obligations will be 30 percent lower afterwards this transaction.” – Bloomberg