YOU want European champions? Try this for size.
Deutsche Telekom AG is considering taking full control of T-Mobile US Inc in a move that could create a US$260bil transatlantic telecoms giant.
It’s easy to see why the German suitor wants to go from being T-Mobile’s lead shareholder to its outright owner.
The benefits for T-Mobile are less obvious – until you consider its future without a deal.
T-Mobile, worth US$210bil, has grown rapidly in recent years.
Deutsche Telekom owns 53% from past dealmaking and this exposure is the dominant driver of its share price.
More than 70% of the German company’s roughly €135bil (US$160bil) market value is attributable to the holding.
Deutsche Telekom is mulling a full merger and has been weighing a move for several years, Bloomberg has reported.
Such a transaction would carry little upfront benefit given the limited overlap between US and German telecoms networks, other than maybe a cheaper tax bill and the bulk-buying of paperclips.
But the sheer scale of the organisation would make it easier to finance investment in either the US or German businesses, as well as opening up more merger and acquisition opportunities.
Such strategic flexibility is easy to scoff at for being nebulous or even harmful.
After all, dealmaking is risky. Why would T-Mobile shareholders want to help management do expensive takeovers, or allow their cash flow to subsidise network upgrades in Europe?
Moreover, a transaction would dilute T-Mobile’s all-American investment story.
Deutsche Telekom stock has long traded at a lower multiple of earnings than the US company, reflecting market expectations of slower growth.
It’s hard to see a deal offering T-Mobile a high takeover premium to compensate for a change in strategy: Deutsche Telekom already has substantial control and doesn’t need to pay a lot for more.
That said, there’s a case for offering at least a modest top-up to T-Mobile’s prevailing share price to get its minority investors to play ball.
Deutsche Telekom’s share price slid slightly on Tuesday, possibly anticipating that scenario. But the target’s fell too, as investors fret about European absorption.
Shareholders should, however, be wary of romanticising T-Mobile.
After a tremendous run in 2024, its stock price has fallen by about a quarter in the last eight months because of concerns about competition.
Maybe being allied with a business in Europe – which is showing signs of greater permissiveness in telecoms consolidation – isn’t such a bad idea after all.
Investors have put a higher value on Deutsche Telekom’s non-US assets lately.
The rise and fall of T-Mobile US
Concerns about competition have weighed on the US carrier’s stock lately.
Greater freedom for T-Mobile to strike future deals is also surely a net benefit.
As things stand, the company is probably held back from large-scale moves as Deutsche Telekom might avoid any transaction that diluted its stake to a non-controlling position, New Street Research’s James Ratzer says.
Full ownership would alter that dynamic. So from a shareholder perspective, there’s something to like here.
The snag may be the authorities. On paper, regulatory obstacles are hard to see: Deutsche Telekom already has substantial control.
The German state’s holding would be diluted in the combination, while remaining meaningful.
But what will the United States make of all this? President Donald Trump’s administration could ask for something that advances US interests as a quid pro quo for green-lighting the transaction.
Elon Musk’s ambitions to deliver satellite services in Europe hover in the background.
There have been successful US-German mergers before, notably the 2018 Praxair-Linde combination in chemicals.
There are ways of structuring transactions to look supranational or nationally balanced.
T-Mobile is already controlled by a German parent. On a side-by-side comparison, being part of a strong European champion would surely be a step up. — Bloomberg
Chris Hughes is a Bloomberg Opinion columnist covering deals. The views expressed here are the writer’s own.
