Deutsche Telekom Said Open to T-Mobile Talks at $35 a Share

Aug 29, 2014 9:50 am ET

(Updates with U.S. trading in fourth paragraph.)

Aug. 29 (Bloomberg) -- Deutsche Telekom AG is willing to negotiate a sale of its T-Mobile US Inc. unit, the fourth- largest wireless carrier in the U.S., if an offer puts a valuation of at least $35 a share to the business, according to a person with knowledge of the matter.

At a strategy meeting in Berlin yesterday, Deutsche Telekom senior managers discussed $35 to $40 as a realistic valuation range for T-Mobile that could trigger talks, said the person, who asked not to be identified because the deliberations are confidential. T-Mobile, which rejected a $33-a-share bid by France’s Iliad SA this month, hasn’t received an increased offer, the person said.

Deutsche Telekom’s valuation of T-Mobile opens the door for an improved bid from Iliad or new proposals from potential suitors such as Dish Network Corp. after Sprint Corp. this month withdrew from talks to buy the unit. While T-Mobile has added millions of customers under Chief Executive Officer John Legere, holding on to the business carries risks for its parent. T- Mobile must compete with AT&T Inc. and Verizon Communications Inc. in spectrum auctions this year and in 2015 and has to keep up spending to upgrade its network.

T-Mobile rose 0.3 percent to $29.92 at 9:48 a.m. in New York, adding to yesterday’s 1.4 percent gain. Deutsche Telekom owns 67 percent of the Bellevue, Washington-based company, which has a market value of $24 billion.

Stand-Alone Value

Dish fell 0.6 percent to $64.33. Deutsche Telekom dropped 0.7 percent to 11.35 euros in Frankfurt, while Iliad lost 0.4 percent to 166.95 euros in Paris.

Starting in November, Deutsche Telekom has the option of selling T-Mobile shares on the market as a lock-up period ends.

Philipp Kornstaedt, a spokesman for Bonn-based Deutsche Telekom, declined to comment. He reiterated CEO Timotheus Hoettges’s Aug. 7 remarks that any deal would have to exceed T- Mobile’s stand-alone value. An Iliad representative in Paris declined to comment whether the company would improve its bid. Bob Toevs, a Dish spokesman, declined to comment.

In the absence of a good enough offer, Deutsche Telekom is focusing on the U.S. spectrum auctions. Management left open yesterday how T-Mobile plans to finance the purchases, the person said. The operator faces its first auction of wireless spectrum, of so-called “AWS-3 bands,” starting Nov. 13, according to the Federal Communications Commission.

For next year’s auction of coveted 600-megahertz bands, which allow larger areas of coverage across the countryside and inside buildings, Hoettges is pressuring regulators for favorable conditions to help T-Mobile offset the deeper coffers of its larger rivals.

Sprint Failure

T-Mobile’s talks with Sprint failed over conditions for the deal and concern that U.S. regulators won’t approve a combination of the third- and fourth-largest wireless operators in the country.

A deal with Sprint may have valued T-Mobile at about $40 a share, people familiar with the talks said in June. Deutsche Telekom would consider forgoing a higher price if that means avoiding the uncertainty of a prolonged regulatory review of a deal that would reduce the number of nationwide carriers to three from four, other people familiar with the matter have said.

U.S. Kingmakers?

“I’m surprised that Deutsche Telekom would not want north of $40 per share given that they view themselves as the kingmakers of the U.S. wireless market,” said Walt Piecyk, an analyst at BTIG LLC, in an e-mail.

Like T-Mobile, Iliad rattled France’s wireless market with rock-bottom-priced packages that have led to a two-year tariff war with incumbent operators. BNP Paribas SA and HSBC Holdings Plc had agreed to lend Iliad as much as $13 billion to finance its bid, a person with knowledge of the deal has said.

Dish, led by billionaire Chairman Charlie Ergen, is seen by some analysts as a better match for T-Mobile as the Englewood, Colorado-based company could integrate its $26 billion worth of airwaves and national pay-TV service with the carrier.

“Dish can sit and wait to react to whatever bid Iliad can muster,” Piecyk said.

--With assistance from Marie Mawad in Paris, Amy Thomson in London and Scott Moritz in New York.