* Deal ends uncertainty about Telekom's U.S. strategy
* Price seen 50 pct above standalone valuation consensus
* Raises questions about growth, anti-trust concerns
* 5 billion euros for buybacks over 2-3 years
* Shares up 13.7 percent, hit 26-month high
(Adds details on consolidation, growth strategy, anti-trust)
By Georgina Prodhan and Nicola Leske
LONDON/FRANKFURT, March 21 Deutsche Telekom AG
(DTEGn.DE) said it would focus on organic growth and return cash
to shareholders after agreeing the sale of T-Mobile USA to AT&T
(T.N) for $39 billion, lifting its shares to a two-year high.
The deal, which creates a new U.S. industry leader with
Deutsche Telekom as an 8 percent shareholder, is the world's
biggest M&A deal this year and Germany's biggest in a decade. It
gives AT&T access to T-Mobile's spectrum, crucial for expansion.
The agreement ends long-running uncertainty about Deutsche
Telekom's sub-scale U.S. business, but raises questions about
the company's growth strategy as it retrenches in its European
heartlands. It will also raise anti-trust concerns.
Deutsche Telekom Chief Financial Officer Tim Hoettges said
on Monday the company would focus on organic growth. But its
strengthened balance sheet will give it an advantage in bidding
for European assets, for example in Poland and Serbia.
"This gives us enormous scope for the future implementation
of our strategy," Hoettges told journalists on a call, saying
Deutsche Telekom would continue to focus on growth areas such as
commercial mobile Web services.
Deutsche Telekom Chief Executive Rene Obermann had failed to
impress the market a year ago when he promised to transform the
company's business model with a slew of new paid-for services
using Internet technology. [ID:nLDE62G1NI]
Deutsche Telekom shares initially leapt more than 16 percent
in reaction to the 5 billion euros ($7.1 billion) in planned
share buybacks and the unexpectedly high price AT&T will pay.
"Given the solid valuation and the fact that we thought
T-Mobile USA would struggle to meet targets, selling is a good
move," UBS analyst John Hodulik wrote, adding the valuation was
about 50 percent above its consensus standalone valuation.
By 1242 GMT, Deutsche Telekom shares were up 13.7 percent at
10.90 euros, after hitting a 26-month high of 11.15 euros. The
credit market also reacted positively, with traders marking
Deutsche Telekom bonds tighter. [ID:nIFR5l4D8t]
T-Mobile will use the $25 billion cash proceeds of the deal
to pay down debt, buy back shares and underpin its dividend
Factbox-AT&T pays over $1,000 per [ID:nN20290039]
AT&T creates industry leader [ID:nN20237333]
Graphic on M&A league table: r.reuters.com/kyb46q
Breakingviews: AT&T asks Uncle Sam $39 bln question
Insider interview with CFO: link.reuters.com/gej68r
Deutsche Telekom said it would have no extra cash from the
deal for acquisitions but it could sell down part of its AT&T
holding or use it as currency. It will also be better positioned
to raise loans after making debt repayments.
"I think they would be extremely careful about doing any new
deals ... they come from a very strict financial discipline ...
I don't expect them to go out on a binge," a Top 10
institutional shareholder in Deutsche Telekom said.
Hoettges said acquisitions were not Deutsche Telekom's
priority and it had no plans to use the proceeds for expansion
in fast-growing regions such as Africa or Asia.
Other European telecoms companies are also turning their
attention inwards as deals in higher-growth markets become
politically and financially more difficult, especially given the
turmoil in North Africa and the Middle East.
Vodafone (VOD.L) is exiting minority stakes abroad and sold
its stake in China Mobile (0941.HK) for $6.5 billion last year,
while France Telecom FTE.PA is treading a cautious path with
its African expansion ambitions.
Deutsche Telekom operates in about 50 countries, mostly in
western and central Europe. Outside Europe and excluding
T-Mobile USA, its only activities are in IT services through its
Stephan Thomas, who manages a fund holding 8.5 million
Deutsche Telekom shares at Frankfurt Trust, said the news was a
positive surprise but he was worried about future growth
prospects as well as potential anti-trust issues.
"It's neither in the BRIC countries nor in other strong
growing markets. I see little room (for growth) in the future.
I'm also not a fan of share buybacks. Due to the limited growth
perspectives I remain underweight in the stock," he said.
The deal will give the new combined company about 40 percent
of the U.S. mobile market, ahead of Verizon Wireless (VZ.N) and
number three Sprint Nextel (S.N).
"We expect a challenging regulatory review," Citi analysts
Michael Rollins and Simon Weeden wrote in a note. "We would only
place a maximum probability for approval of 50 percent ... at
this early stage in the process."
Monday's news also lifted other European telecoms stocks,
particularly Vodafone (VOD.L), whose U.S. joint venture Verizon
Wireless could benefit from less competition and could snap up
some assets that AT&T may have to sell.
Vodafone shares rose 4.2 percent and Greece's OTE (OTEr.AT),
in which Deutsche Telecom owns 30 percent, rose 7.8 percent.
Deutsche Telekom had for some time been seking a solution
for its U.S. mobile business, which was for years a cash cow but
lacked the scale to compete with AT&T and Verizon Wireless.
Morgan Stanley was lead adviser to Deutsche Telekom, along
with Deutsche Bank and Credit Suisse. Greenhill & Co, JP Morgan
and Evercore Partners advised AT&T.
(Additional reporting by Christoph Steitz and Hakan Ersen in
Frankfurt and Alex Chambers in London; Editing by Sophie Walker
and David Holmes)