At the annual gathering of Deutsche Telekom AG investors in Cologne, Germany, questions for Chief Executive Officer Timotheus Hoettges focused on a place 5,000 miles (8,000 kilometers) away: Bellevue near Seattle.
Europe’s largest carrier has ended a three-year revenue slide, its share price is at the highest in six years, and the T-Mobile US Inc. unit has turned from laggard to a prized asset -- so much so that SoftBank Corp. is weighing a takeover bid against the odds of winning regulatory approval.
T-Mobile, valued at $35 billion including debt, accounted for all of Deutsche Telekom’s sales increase last year. As the European business continues to shrink, Hoettges is trying to reassure shareholders who want to find out whether a U.S. sale will happen this year, and if so, where else Deutsche Telekom can find growth.
“If they sell the U.S. and use the money wisely to reshuffle the European portfolio it would be great,” said Lieven Op De Beeck, who co-manages the equivalent of about $1.4 billion of assets including Deutsche Telekom shares at Petercam SA in Brussels. “I would rather have them give cash back to me than invest money in an unknown market where they’re probably going to have to overpay anyway.”
Sprint Corp., the U.S. carrier of Masayoshi Son’s SoftBank, is expected to make a formal bid for Bellevue, Washington-based T-Mobile in June or July, a person with knowledge of the matter said this month. Hoettges told reporters last week he’s pessimistic about the chances of authorities approving such a merger in the near term.
Hoettges reiterated today that an enlarged rival for AT&T Inc. and Verizon Communications Inc. would benefit from lower costs and better network coverage. T-Mobile would be well-placed for consolidation, he said.
The 51-year-old took over as CEO in January. In his previous role as chief financial officer, Hoettges took part in negotiating the 2011 sale of T-Mobile to AT&T, which failed to overcome regulators’ concerns that the combination would harm competition. He continues to argue that T-Mobile will need a partner as it can’t outspend larger providers AT&T and Verizon Communications Inc.
“Deutsche Telecom has been priming T-Mobile to sell,” said Roger Entner, an analyst at Recon Analytics based in Dedham, Massachusetts. “They are focused on growing customers and are not concerned about profitability right now.”
Deutsche Telekom shares rose 2 percent to 13.12 euros at the close in Frankfurt, valuing the carrier at 58.4 billion euros ($80 billion). T-Mobile added 1.3 percent to $33.26 in New York trading.
Selling T-Mobile would put Deutsche Telekom in the footsteps of Vodafone Group Plc, which divested its 45 percent stake in Verizon Wireless for $130 billion last year. Yet, unlike Vodafone, which owns assets in growing markets such as Africa and India, Deutsche Telekom would become fully exposed to weaknesses in Europe’s economies.
Betting the company’s future on its home region would mean fighting against John Malone’s Liberty Global Plc and Vodafone, both of which have bought assets from the U.K., Netherlands to Germany.
Mergers with European peers, such as a combination with Orange SA of France, aren’t on the agenda, Hoettges told shareholders. European regulators need to harmonize rules across the region before such a move could make sense, he said.
Deutsche Telekom is prepared to do smaller deals like its acquisition of GTS Central Europe, which gave the company fixed-line assets in countries including Poland and the Czech Republic, he said.
Hoettges is reshaping the German carrier in other ways, too. He refocused Deutsche Telekom on building and managing phone and Internet connections and scaled back attempts to make money from services such as music downloads and online marketplaces.
“Is Deutsche Telekom slacking on innovation even though it has sufficient funds?” asked Ingo Speich, a fund manager at Union Investment. “Where will value creation and growth come from? We would like to see more innovation to strengthen the core business.”
And as investors like Carlos Slim’s America Movil SAB and AT&T eye European assets -- America Movil today started its cash offer for the remaining shares in Telekom Austria AG -- Deutsche Telekom must be careful how it responds to these changes, said Peter Braendle, who manages about 500 million Swiss francs ($560 million) at Swisscanto Asset Management AG in Zurich.
“They should avoid the temptation of spending too much money carelessly without anything coming out of it for shareholders in the end,” he said.