Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Monday, November 13, 2006

Deutsche Telekom For Sale? AT&T Or Verizon?

Stocks: (T)(VZ)(DT)(BT)(BLS)

Deutsche Telekom fired its CEO. The company's stock has not performed well, but that is only part of the story.

The German government owns 33% of DT's shares, but recently private equity group Blackstone has taken a 4.5% stack. Private equity guys are the smartest people in the room, and they don't like their reputations hurt by losing money.

Deutsche Telekom owns T-Mobile, which has a foothold in the US but is behind Cingular, Verizon, and Sprint in wireless customers.

DT also has a big fixed-line business which is falling off like it had been for US telecoms like AT&T. The company also has T-Online which offers VoIP and broadband service.

Deutsche Telelom has a market cap of about $75 billion.

DT is an international company. According to Morningstar it gets 45% of its revenue from outside its home market and most of that comes from the US.

One of the reasons that DT's CEO was fired is that he has not been quick enough to cut costs. That implies that there is a lot more to be cut. If so, there is a reasonable chance margins could be improved.

DT has had a great deal of success cutting debt, as the WSJ has pointed out.

There is probably a good chance that Blackstone would like to see some profit out of its investment, and the German government might even go along.

There are not a lot of potential buyers. British Telecom? AT&T? Verizon?

AT&T has a market cap of $130 billion. The company has already bought BellSouth. It has huge wireless operations in the US, Cingular. These could be combined with T-Mobile.

How far-fetched? Ask Blackstone.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

Powered by Blogger