Vodafone U.S. Exit Is Cautionary Tale for T-Mobile’s Owner

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Deutsche Telekom AG let go of another chance at exiting the U.S. by spurning an improved bid from Iliad SA. For shareholders, that might not be a bad thing.

Vodafone Group Plc shares have fallen more than any other major phone company’s since it completed the sale of a stake in U.S. mobile carrier Verizon Wireless on Feb. 21, declining more than 30 percent. While the $130 billion deal was feted at the time, it left shareholders with few growth perspectives, said Stephane Beyazian, an analyst at Raymond James in London.

“Sellers haven’t performed that well despite getting a very good price,” he said. “Investors want to make sure that the company that’s left will be a performing company.”

Selling T-Mobile US Inc., the fourth-largest U.S. wireless carrier, would eliminate a third of Bonn-based Deutsche Telekom’s revenue and cut off its only growing unit. Iliad, controlled by French billionaire Xavier Niel, became the second suitor to walk away from talks with the German operator this year after its offer was deemed insufficient.

While Dish Network Corp. may make a move for T-Mobile, Deutsche Telekom’s planning has shifted to how it can keep the unit’s growth momentum going and how it can secure sufficient wireless spectrum in auctions scheduled through the middle of next year, according to a person familiar with the matter who asked not to be identified discussing internal deliberations.

U.S. Growth

“We have a clear standalone case in the U.S.,” said Andreas Leigers, a spokesman for Deutsche Telekom. “We’re in an environment where the company is growing and very healthy.”

Leigers declined to comment on “speculation” about a sale or that the company is shifting its focus away from selling the asset ahead of the U.S. wireless-spectrum auctions.

Europe’s biggest phone companies have used the U.S. as a source of growth as their home regions suffered from heavy competition, weak economies, and tough regulatory restrictions. T-Mobile is adding more than a million mobile customers a quarter, accounting for almost all of Deutsche Telekom’s net wireless-subscriber gains in the three months through June.

If Deutsche Telekom sold T-Mobile, it wouldn’t be in a situation identical to that of Vodafone. Vodafone is exposed to the particularly hard-hit economies in southern Europe, where it’s grappling with falling sales in Spain and Italy, while Deutsche Telekom is primarily focused in the relatively healthier northern parts of the continent.

Deutsche Telekom shares fell 1 percent to 10.80 euros at the close in Frankfurt. They have lost 12 percent since Feb. 21.

Too Generous?

Vodafone shares may have been affected by potential acquirer AT&T Inc. turning its attention to a $48.5 billion takeover of DirecTV this year to shore up its TV business.

Ben Padovan, a Vodafone spokesman, declined to comment on the company’s share performance.

At Vodafone, the loss of a semi-regular dividend from Verizon Wireless, coupled with a plan to spend most of the sale proceeds on a one-time dividend and network improvements, have also lead to debt-rating cuts.

In hindsight, Newbury, England-based Vodafone probably gave too much cash back to shareholders and should have kept a larger share of the proceeds for acquisitions and network improvements, according to Beyazian.