Deutsche Telekom AG (DTE) may never get as good a deal for T-Mobile USA as it did with AT&T Inc. (T)
AT&T agreed in March to pay $39 billion for Deutsche Telekom’s U.S. mobile-phone unit, a takeover that the Justice Department yesterday sued to block. The deal, struck at 28.8 times profit, gave T-Mobile USA the highest valuation of any wireless carrier outside China. With T-Mobile USA now mired in its biggest profit slump in almost a decade, a sale at the same multiple AT&T was willing to pay would generate $12 billion less for Deutsche Telekom, according to data compiled by Bloomberg.
While AT&T said it plans to fight the lawsuit, Deutsche Telekom risks getting saddled with a mobile-phone business that had profit declines in four of the past five years and lost more than a half-million subscribers in 2011. Turning to Sprint Nextel Corp. (S), which analysts say will lose money for a fifth straight year, would mean persuading T-Mobile USA’s larger rival to buy an incompatible wireless network that would still leave the combined entity with fewer customers than Verizon Wireless or AT&T, the two largest U.S. carriers.
“They’ve got a problem on their hands with T-Mobile,” Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a telephone interview. Deutsche Telekom isn’t “going to get as much money as they were hoping. It’s basically damaged goods, T-Mobile. They are going to have to figure out a plan B strategy that is mindful of that unavoidable reality,” he said.
‘Problem Child’
Andreas Fuchs, a spokesman at Bonn-based Deutsche Telekom, declined to comment on how much T-Mobile USA would be worth to a buyer other than AT&T.
Deutsche Telekom fell 7.6 percent yesterday, the biggest decline in 15 months. The shares slumped after the U.S. government filed a complaint in federal court, saying that AT&T’s purchase of T-Mobile USA would “substantially lessen competition” in the wireless market. The sale would combine the second- and fourth-largest U.S. carriers and help AT&T leapfrog Verizon as the largest mobile-phone company in America.
Shares of Deutsche Telekom dropped as much as 1.2 percent today before rebounding, climbing 2.8 percent to 9.05 euros at 4:02 p.m. in Frankfurt. AT&T advanced 0.3 percent to $28.57 in New York after yesterday’s 3.9 percent retreat.
The government’s antitrust suit “probably kills the deal,” said Morten Singleton, an analyst at Investec Securities in London. For Deutsche Telekom, “this was its exit route to get rid of the problem child,” he said.
'Relative Value'
At the same multiple as the AT&T deal, T-Mobile USA would be worth just $27 billion, based on $935 million in net income in the past 12 months, data compiled by Bloomberg show.
T-Mobile USA, which had already cost Deutsche Telekom’s shareholders 64 percent through yesterday since the unit was created a decade ago, may sell for even less as it loses more customers.
The company, which lagged behind its competitors in building out a third-generation mobile network and missed out on sales of Apple Inc. (AAPL)’s iPhone, has reported declining earnings since the takeover was announced. T-Mobile USA’s net income plummeted 55 percent in the first half of 2011 as it lost 663,000 contract customers, data compiled by Bloomberg show.
No other buyers would offer to pay as much as AT&T because the two carriers use the same network standard to deliver mobile-phone and data service, said Kevin Shacknofsky, who helps manage $6 billion for Alpine Mutual Funds in New York. T-Mobile USA’s network is incompatible with Sprint and Verizon.
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