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DT's Shares Rocket on AT&T Deal

Deutsche Telekom AG (NYSE: DT) saw its share price soar by 12.9 percent to a new 12-month high of €10.92 in early Monday morning trading on the German stock exchange following news of its deal to sell its T-Mobile US Inc. unit to AT&T Inc. (NYSE: T) for US$39 billion. (See AT&T to Buy T-Mobile USA for $39B.)

Despite concerns that the proposed divestiture could face some tough regulatory hurdles, investors like the deal because the valuation of T-Mobile USA looks generous (or "attractive," as DT calls it) and the German operator gets a stake of 8 percent in AT&T as well as $25 billion in cash. (See DT to Sell T-Mobile USA.)

An 8 percent stake would make DT "the biggest single shareholder of AT&T," noted DT's CFO Timotheus Höttges in the carrier's official news announcement. "We will also significantly benefit from their strong dividend," he added.

DT says it will use €5 billion ($7.1 billion) for share buybacks and reduce its net debt by about €13 billion ($18.4 billion), more than 30 percent of its total debt.

The deal also enables the German giant to offload a problem child that was already the subject of some recent (and historical) speculation, and removes more than 37,000 staff from its payroll. (See What Happens to Sprint After AT&T/T-Mobile Merger?, this Bloomberg report and A DT Bid for Sprint?)

In 2010, T-Mobile USA reported a slight fall in full-year revenues to $21.3 billion and a 7.1 percent dip in adjusted earnings (earnings before one-time charges, interest, tax, depreciation and amortization) to $5.5 billion.

The biggest disappointment, though, was the reduction in its subscriber base, as it ended the year with 33,734,000 customers, about 56,000 fewer than it had at the start of the year. The loss of contract customers was a particular concern, especially during the fourth quarter. (See T-Mobile Loses Subs as Data Grows 25%.)

The move, should it be completed by early 2012 as planned, will allow DT to "focus more on the opportunities of a modern infrastructure in Germany and Europe, as well as in Internet products" that are at the heart of the carrier's service development strategy, stated CEO René Obermann.

— Ray Le Maistre, International Managing Editor, Light Reading

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