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Deutsche Telekom Linked to Co.

July 5, 2000

BONN, Germany (AP) _ Shares in Deutsche Telekom AG shot up Wednesday as a new name surfaced in talk about the cash-rich company’s continuing quest for an international takeover target.

This time it’s telecommunications and Internet company Cable and Wireless PLC, a British giant with operations in nearly 70 countries.

The speculation follows on the heels of Telekom’s reported overtures to the Westwood, Kan.-based Sprint Corp. and renewed rumors that it may again be courting Qwest Communications International Inc. after an earlier merger attempt failed this spring.

According to an advance copy of Thursday’s German business magazine Focus Money, as well as the investment magazine Die Teleboerse, Telekom and Cable and Wireless are expected to sign a deal soon, but not before July 19.

Cable and Wireless, with a market value of roughly $50 billion, is seen as a good match for Deutsche Telekom and has long been a favorite merger candidate among analysts.

``If I had a penny for every time I heard that story, I’d be a rich man,″ said Ian Johnston, a telecom analyst with J.P. Morgan. ``Deutsche Telekom has a very active mergers and acquisition program and they could be in different discussions with 20 companies at the same time.″

The companies refused to comment on the media reports, but the news helped push shares of both higher. Deutsche Telekom rose 3 percent to 57.45 euros ($54.96) in Frankfurt trading, while shares of Cable and Wireless rose 7 percent to 1,246 pence ($18.81) in London.

Deutsche Telekom is also reportedly pursuing Sprint, a company that also fits well with the German company’s strategy and is seemingly back in play with its proposed acquisition by WorldCom stymied by regulatory problems.

Telekom already owns 10 percent of the No. 3 U.S. long distance carrier, and analysts say it would be a good step forward for the Germany company.

``It’s in Sprint’s best interest to pursue other options, which may or may not include remaining independent,″ analyst David Burks said Wednesday. ``Given that they were willing to merge with WorldCom in the first place, we think they would be amenable to a partnership, i.e. a merger with another telecom company.″

Burks, a telecommunications analyst with J.J.B. Hilliard W.L. Lyons Inc. in Louisville, Ky., said Deutsche Telekom would be a suitable partner for Sprint, given its size and deep pockets.

``For all intents and purposes it would seem that Sprint’s likely to be acquired by someone at some point sooner than later,″ he said. ``Probably sooner.″

Sprint spokesman Bill White said Wednesday that the company would not comment on any of the recent rumors because ``our merger proposal with WorldCom is still not terminated.″ WorldCom also declined to comment.

Deutsche Telekom has been on a cash-raising rampage this year _ gearing up for the next round of bidding for licenses to operate next-generation mobile telephones throughout Europe and prompting speculation about a major purchase.

It sold off its $3.1 billion stake in France Telecom, and is in the process of trying to sell its nationwide cable television network, in a drive to raise up to $15 billion. At the same time, Deutsche Telekom put its Internet subsidiary on the stock market and plans a public offering of its mobile division in the fall.

To cap it all, Deutsche Telekom last week launched a $14.5 billion bond offering _ the largest in corporate history.

Johnston said it was unlikely Deutsche Telekom would go for both Sprint and Cable and Wireless. ``But I think that Sprint would give them a more meaningful footprint in the United States,″ he added.

Another possibility for Telekom is Denver-based Qwest, which last week completed its acquisition of U S West.

Qwest chairman and chief executive Joseph Nacchio declined to comment on the speculation, most recently raised by a Wall Street Journal article Wednesday.

Nacchio suggested, however, that the industry will continue to consolidate into a few ``global multinationals.″

″ At some period of time we’ll probably do something else and at some period of time somebody else may do something with us,″ Nacchio said at a Denver press conference. ``We’ll run the business as we know it, achieve the synergy, keep our eyes focused and see how this market develops.″


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