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Deutsche Telekom Said to Weigh Exit Options for U.K. Venture

An employee demonstrates a smartphone inside a store operated by Everything Everywhere Ltd., in London. Photographer: Chris Ratcliffe/Bloomberg
An employee demonstrates a smartphone inside a store operated by Everything Everywhere Ltd., in London. Photographer: Chris Ratcliffe/Bloomberg

Deutsche Telekom AG, Germany’s largest telephone company, is evaluating options for an exit from the U.K. as it seeks to raise cash after failing to sell its T-Mobile USA unit, people with knowledge of the matter said.

The Bonn-based company is in the early stages of deciding whether to sell its half of the Everything Everywhere wireless venture it owns with France Telecom SA, the people said, declining to be identified because the discussions are private. Deutsche Telekom has yet to hire investment banks and any decision on an exit is unlikely before later this year as it focuses on improving operational performance first, they said.

Mobile operators are re-evaluating their operations as revenue growth stalls in developed markets and regulators set limits on fees from services like international roaming. Paris-based France Telecom began a review of its European portfolio last year as part of an effort to concentrate on emerging markets, and has agreed to sell units in Austria and Switzerland in the past two months.

For Deutsche Telekom, “more cash might have to be allocated to the U.S. market” in the mid-term to cover potential investments in high-speed network infrastructure, said Jochen Reichert, an analyst at Warburg Research in Hamburg. “And then there could come the question of how Deutsche Telekom can raise more cash.”


Options for Everything Everywhere may include France Telecom buying out its German partner’s stake, or a process to seek a third-party buyer for the entire operator, such as a group of private-equity firms or other phone companies, the people said. The French company could face financing challenges that would make taking full control of the venture difficult, they added.

An initial public offering of part or all of Everything Everywhere may also be an option, said Robin Bienenstock, an analyst at Sanford C Bernstein in London. The operator may be valued at 12 billion euros ($15.6 billion), based on a multiple of about seven times its earnings before interest, taxes, depreciation and amortization, according to Espirito Santo analyst Nick Brown.

Deutsche Telekom spokesman Andreas Fuchs declined to comment, saying the company has a “long-term commitment” to the U.K. market and that its venture is “competing successfully.” A France Telecom spokesman declined to comment.

Telecommunications companies’ stocks have declined amid price competition and costs tied to network upgrades. Deutsche Telekom shares have plunged 12 percent in the past year to 8.85 euros today, while France Telecom shares have fallen 31 percent in the same period to 11.26 euros on the Paris exchange. The Bloomberg European Telecommunications Index, which tracks the share prices of the region’s largest phone companies, has slid 17 percent.

Called Off

Deutsche Telekom and AT&T Inc. in December called off a $39 billion deal to sell T-Mobile USA to the U.S. phone company after concluding it would be too difficult to overcome opposition from regulators.

The former German phone monopoly had planned to use the proceeds to cut debt by 13 billion euros and repurchase 5 billion euros of its own shares. Deutsche Telekom also needs funds to upgrade fiber and wireless networks in Germany and other European markets.

France Telecom and Deutsche Telekom agreed to merge their U.K. operations in 2009, creating the country’s largest mobile operator by leapfrogging Telefonica SA’s O2 unit. The deal took the U.K. from five full-service mobile operators to four, in line with Italy, Spain, and Germany. At the time, the venture was valued at between 6 billion pounds ($9.4 billion) and 7 billion pounds, one of the people said.

Everything Everywhere announced a management shake-up in September, cutting the number of directors from 25 to 10 as Olaf Swantee, the former head of France Telecom’s European operations, took over as chief executive officer. In that month, Deputy CEO Richard Moat, a Deutsche Telekom executive, left the operator along with five other senior managers.

The venture reported a 4.3 percent decline in third-quarter sales as it lost clients amid a push to shift them to longer-term contracts.

The price of Everything Everywhere’s first traded bonds, issued last month, slipped to their lowest level ever today. The 500 million euros of 3.5 percent bonds due in 2017 fell 1.7 cents on the euro to 98.35, according to Bloomberg Bond Trader prices.

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