May 5 (Bloomberg) -- Deutsche Telekom AG fell in Frankfurt trading after Der Spiegel reported Europe's largest phone company is evaluating a takeover of Sprint Nextel Corp.

Deutsche Telekom declined as much as 18 cents, or 1.5 percent, to 11.61 euros and traded at 11.62 euros as of 9:08 a.m. Sprint Nextel didn't trade in Europe.

``Deutsche Telekom would come under fire from the rating agencies if it made such an acquisition,'' said Frank Schneider, an analyst at alpha Wertpapierhandel in Frankfurt. ``Big takeovers are always seen with criticism and Sprint hasn't been doing well recently.''

Standard & Poor's put its long-term rating for Deutsche Telekom on ``CreditWatch'' on March 17, indicating a possible downgrade, after the Bonn, Germany-based company announced plans to buy 20 percent in Hellenic Telecommunications Organization SA for 2.5 billion euros. Fitch Ratings placed its rating for the company on Rating Watch Negative that day.

``In case of a more comfortable debt position and easier debt markets a Sprint acquisition might make sense, but not in the current environment,'' Frank Rothauge, an analyst at Sal. Oppenheim jr. & Cie. in Frankfurt, said in a note to clients. ``We assign just a 20 percent probability to a takeover of Sprint Nextel at the current point in time.'' Rothauge has a ``buy'' recommendation on Deutsche Telekom shares.

A combination with Sprint could make the German company's T-Mobile USA unit the biggest wireless company in the U.S., the Wall Street Journal said yesterday. Sprint Nextel's share price drop and the strong euro make the transaction a bargain, Spiegel said.

Deutsche Telekom spokesman Andreas Leigers and Sprint spokesman James Fisher said their companies don't comment on ``rumors.''

Junk Status

Interest in Sprint, with a market value of more than $22 billion, may shore up the stock after a 40 percent slump this year. Overland Park, Kansas-based Sprint posted a $29.6 billion loss in 2007 as customers moved to larger rivals AT&T Inc. and Verizon Wireless. Last week, Sprint had its credit rating cut to junk by Standard & Poor's.

``A combination between both operators would make sense for it strongly improves Deutsche Telekom's position in the U.S. but essentially benefits Sprint Nextel which has been in the doldrums since the merger between Sprint and Nextel in 2005,'' Rob Goyens, an analyst at Dexia SA in Brussels, said in a report today.

``It's not the first time that these rumors pop up and given Deutsche Telekom's pending acquisition of a controlling stake in the Greek incumbent OTE we are bound to take this morning's news with a grain of salt,'' Goyens wrote.

Dexia has a ``neutral'' recommendation on the stock.

Merrill Lynch & Co. suggested in a report dated March 6 that the ``case for Deutsche Telekom acquiring Sprint increases,'' citing currency and share-price movements.

``The difficulty integrating T-Mobile and Sprint's networks cannot be underestimated,'' London-based analysts including Graham Ruck wrote in the report. ``We are not aware of any discussions between the parties,'' they said.

The brokerage has a ``sell'' recommendation on Deutsche Telekom's stock.

To contact the reporter on this story: Andreas Hippin in Frankfurt at ahippin@bloomberg.net.

Last Updated: May 5, 2008 03:15 EDT