Deutsche Telekom is studying a merger with its US subsidiary, T-Mobile US, to create the world’s largest telecommunications group. At least, that’s what has appeared in the main international economic media. If it finally materializes, the deal would be historic, at a time when large European companies in the sector are looking to gain size against the giants of China and the United States, but it would also be politically delicate. For now, in these first steps of the operation, the German company has refused to make statements and the US company has also dismissed it as “speculation”.
Likewise, the German government – which until now jointly owns 28% of Telekom’s shares with the German public bank KfW – avoided commenting on these rumors this Wednesday, despite the insistence of journalists. In the event of a full merger, the state’s stake in the combined company would be considerably reduced and it is not clear whether the German government would support it. Political support from the US government in Washington would also be necessary.
“These are speculations on which, in principle, we do not comment. When speculations or alleged information are also relevant to capital markets, we cannot comment on them. And here, as I have already said, it is simply speculation,” declared the spokesperson for the Ministry of Finance, Maximilian Kall, during the traditional government spokespersons’ press conference. Likewise, when asked if the government plans to sell its Telekom shares, he indicated that he was not aware “of such plans” and reiterated his refusal to enter into these speculations.
On Tuesday night, Bloomberg news agency reported that the Bonn-based company was considering a merger with its highly profitable subsidiary T-Mobile US. Until now, Telekom only owns 53% of the US mobile operator. Later, Reuters also reported on the matter. The news agencies refer to unidentified internal sources and emphasize that deliberations are at an early stage and that there are various obstacles. Deutsche Telekom and T-Mobile have repeatedly considered a closer merger in the past, without any final result.
Deutsche Telekom bought a US mobile phone company at the beginning of the century and rebranded it as T-Mobile US. Initially, the business yielded the expected returns, and, at one point, executives even considered divesting the subsidiary. But then there was a change of course, and now the 53% stake in T-Mobile US is an important source of profit. Almost two-thirds of the operating profit comes from the United States, and turnover there is higher than in Germany. For this reason, T-Mobile US has a higher stock market value than its parent company.
According to Bloomberg’s calculations, a merger would create a group with a market value of 320 billion euros, considerably more than the market value of the hitherto number one in the telecommunications sector, China Mobile. The operation would, at the same time, be the most expensive merger in economic history in terms of combined value between both companies. In this area, AOL’s purchase of Time Warner at the beginning of the century remains the most important to date, with an estimated value of around 100 billion dollars at the time.
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In Germany, the media recall how in 2019 Telekom considered a merger with its French rival Orange and how those plans failed due to political resistance in both Germany and France, and point to the growing awareness of the sovereignty of critical infrastructure at a time of great geopolitical insecurity.
Therefore, it would be surprising if Telekom were allowed to become part of a foreign holding company. In this context, the Ministry of Economy points out – without wishing to comment on this specific case – that “investment controls precisely give the German government the possibility to examine investments in companies in Germany to determine whether they affect public security and order and, if necessary, adopt measures or issue orders.”
Movements in Europe
In any case, the European telecommunications sector is experiencing weeks of major corporate movements, although all of them within the borders of each state. This is the case of Telecom Italia, which has launched a 10.8 billion offer for Poste Italiane. or the French SFR, which has launched itself on its competitors, including Orange. In Spain, the Government has just approved this Tuesday the purchase by Orange of the 50% it did not control in MasOrange, the entity resulting from its merger with MásMóvil.
All this, at a time when Brussels seems more open to this type of concentration. The European Commission confirmed last week that it will relax competition rules to allow mergers in strategic sectors, with a special emphasis on telecommunications. In the background, the insistence of large European firms for a more lenient approach, as has been continuously presented to the Commissioner for Competition, the Spanish Teresa Ribera.
