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Deutsche Telekom Didn’t Mislead 16,000 Investors, Court Says

Deutsche Telekom AG won dismissal of most parts of a case bundling suits by more than 16,000 shareholders over a share sale 12 years ago.

The Higher Regional Court in Frankfurt today said Deutsche Telekom didn’t make mistakes in its prospectus that could have misled investors in connection with the 13 billion-euro ($16.5 billion) share sale in 2000. The shareholders, who mostly held small stakes, were seeking about 80 million euros in compensation.

“The questions was what kind of average investor we were taking as the benchmark here,” Presiding Judge Birgitta Schier-Ammann said after delivering the ruling. “We have decided to take the person who understands balance sheets and has read the complete prospectus.”

The investors, many of whom were buying shares for the first time, argued that they were misled because Deutsche Telekom’s sales prospectus contained dozens of mistakes. They claimed the company improperly reported the value of real estate and didn’t disclose in a timely way its intention to acquire U.S. phone operator VoiceStream in 2000.

The court rejected the claims, saying the methods used for valuing the real estate was according to applicable rules at the time and was within a leeway such evaluations necessarily have. After hearing 20 witnesses in Germany and in the U.S., the court also didn’t find that the decision to buy VoiceStream was taken early enough to require an addition to the prospectus or a supplement, Schier-Ammann said.

‘Pyrrhic Victory’

Today’s ruling is a “Pyrrhic victory” for Deutsche Telekom, Andreas Tilp, the lead counsel for the plaintiffs, said in an e-mailed statement after the ruling. He will appeal, he said. The court ruled against the phone company on some procedural issues.

The Frankfurt suit bundles shareholders’ claims under a special process known as a model case established in 2005 to help courts handle multiple investor actions. Individual suits were filed as early as 2002 and the model case, which later bundled them, started in 2008.

The German government is in the process of revising rules for model-case proceedings in an effort to make them more efficient and speedier.

Deutsche Telekom ‘Optimistic’

“Today’s ruling completely backs our position,” said Andreas Fuchs, a spokesman for Deutsche Telekom. “We are optimistic that we will also prevail at the appeals level.”

The court today also rejected claims that Deutsche Telekom wrongfully informed about proceeds from the restructuring of the holdings in Sprint within the company.

Deutsche Telekom also wasn’t obliged to report about a criminal probe settled in the 1990s over a previous shares sale, the judges ruled. The court didn’t find any criminal action by Deutsche Telekom management.

The company, Germany’s former phone monopoly, first sold shares to the public in 1996 for the equivalent of 14.31 euros each. They reached a record 103.50 euros in March 2000, and in June of that year the government sold part of its stake to individual investors for 63.50 euros a share. The shares declined 0.5 percent to 8.796 euros at 11.33 a.m. in Frankfurt trading.

The case is OLG Frankfurt, 23 Kap 1/06.

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