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Deutsche Telekom CEO Closes In on U.S. Deal After Third Try

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Deutsche Telekom CEO Closes In on U.S. Deal After Third Try

  • The German carrier’s shares rise most since October 2018
  • T-Mobile-Sprint deal would mark Hoettges’s crowning victory
Tim Hoettges
Tim Hoettges Photographer: Simon Dawson/Bloomberg
Tim Hoettges
Photographer: Simon Dawson/Bloomberg

Deutsche Telekom AG is the closest it’s ever been to securing the U.S. wireless mega-merger that Chief Executive Officer Tim Hoettges has attempted to clinch three times.

The German phone company rose the most in almost 10 months on Monday after clearing a major hurdle for the $26.5 billion takeover of Sprint Corp. by its T-Mobile US Inc. unit three days earlier, when the U.S. Justice Department approved the combination.

Getting the deal across the finish line would deliver the greater heft Hoettges has been seeking for T-Mobile for nearly a decade, with Deutsche Telekom facing a stagnant European telecom market.

“It would add to Hoettges’s success as a dealmaker after a string of recent M&A approvals in Europe,” said Erhan Gurses, an analyst at Bloomberg Intelligence.

American Dependence

Deutsche Telekom's U.S. unit has been making up for flat sales in Germany

Source: Bloomberg data

The Sprint combination gives Deutsche Telekom a stronger vehicle to expand in the profitable U.S. market and test new technologies such as 5G before they are introduced elsewhere. It dilutes its reliance on Europe, where carriers are struggling to grow amid fierce competition and where its biggest German rival -- Vodafone Group Plc -- recently won clearance to buy continental cable assets from Liberty Global Plc.

Deutsche Telekom rose as much as 3% in Frankfurt, the steepest intraday gain since Oct. 10, 2018.

T-Mobile’s importance for Deutsche Telekom has grown steadily and currently accounts for around half of group sales, up from about a third in 2014 -- the year before Hoettges took over as CEO. With the Sprint deal, most of the Bonn-based company’s cash would be generated in the U.S.

T-Mobile and Sprint scrapped a previous plan to merge in 2014 after meeting resistance in Washington. Their second attempt failed in late 2017, when Hoettges and Masayoshi Son, the chairman of SoftBank Group Corp. -- Sprint’s owner -- couldn’t agree on how to structure control of the combined entity, people familiar with the matter said at the time.

Hoettges brought the merger back from the dead a few months later. On Jan. 1, 2018, he took out his phone and tapped out an SMS to Son, wishing him a happy New Year and expressing regret that the merger hadn’t happened. It reignited a conversation that culminated in an agreement to pursue a takeover that’s poised to reshape the wireless industry.

By then, T-Mobile had increased its lead over Sprint, which hasn’t had a profitable year in more than a decade, allowing Hoettges to claim greater control in the attempt to combine the two companies.

Deutsche Telekom’s U.S. adventure began in 2001, when then-CEO Ron Sommer bought Voicestream for a hefty 40 billion euros ($44 billion). His successor Rene Obermann, discouraged by the unit’s failure to win significant market share, tried to sell T-Mobile to AT&T a decade later in a deal backed by Hoettges, then his chief financial officer, but regulators got in the way. That failure now looks like a blessing.

T-Mobile bought rival Metro PCS in 2013 to add subscribers and capacity and invested in new frequencies to improve its network. Under the leadership of John Legere, T-Mobile became the country’s fastest-growing carrier, gaining more than 6 million subscribers over the past three years, a pace that has now slowed. T-Mobile forced the industry to try to match sales techniques that included offers of phone financing, free video streaming and unlimited data plans.

Deutsche Telekom will own 42% of the new business and appoint nine of its 14 directors, with Hoettges serving as chairman. Legere will lead it as CEO, backed by his top lieutenant, Michael Sievert, as chief operating officer.

There’s at least one final step: The companies need to overcome a lawsuit by a group of state attorneys general seeking to block the merger on competition grounds.

(Updates with Deutsche Telekom shares in second, sixth paragraph.)