By Serena Saitto, Jacqueline Simmons and Jeffrey McCracken
Deutsche Telekom AG (DTE) has held talks to sell its T-Mobile USA unit to Sprint Nextel Corp. (S) in exchange for a major stake in the combined entity, said people with knowledge of the matter.
Talks have been on and off, and a deal may not be reached, said the people, who spoke on the condition of anonymity because the talks are private. The companies haven’t been able to agree on the valuation of T-Mobile USA, which reported a drop in profit in the fourth quarter, the people said. Sprint and Deutsche Telekom shares jumped.
A merger of Sprint and T-Mobile USA would combine the third- and fourth-largest U.S. wireless providers behind Verizon Wireless and AT&T Inc. (T) T-Mobile USA may be worth $15 billion to $20 billion, according to Michael Kovacocy, an analyst at Evolution Securities in London. Sprint’s market value was $13.6 billion as of yesterday’s close.
Deutsche Telekom may be disappointed in the price an acquirer is willing to offer, Kovacocy said in an interview. Even though the company may expect about $25 billion, given the unit’s earnings performance, buyers may want to pay less because of customer losses, he said.
“It’s selling from a weak position in the marketplace,” said Kovacocy, who doesn’t own shares in either company. “The operations could fetch well south of $20 billion, well below what DTE would look for.”
Sprint added 25 cents, or 5.6 percent, to $4.73 in New York Stock Exchange composite trading at 10:52 a.m., and earlier rose as much as 7.4 percent, the biggest intraday jump in three months. Deutsche Telekom climbed 3.8 percent to 10 euros at 4:52 p.m. in Frankfurt, and earlier advanced as much as 6.1 percent, the most in more than two years.
A tie-up would allow Bonn-based Deutsche Telekom, Europe’s largest phone company, to keep a stake in one of its biggest markets while making it easier to finance investments for a faster next-generation network.
“In general, all options are open in the U.S. — the sale of the whole business or of parts,” Deutsche Telekom Chief Financial Officer Timotheus Hoettges said in an e-mail today. He said the company could also find a partner, sell shares in the market or form a network agreement.
Bill White, a spokesman for Overland Park, Kansas-based Sprint, declined to comment.
T-Mobile, which accounts for about a quarter of Deutsche Telekom’s sales, has lost customers at an accelerated rate as it trailed rivals in building out a third-generation mobile network and missed out on being able to sell Apple Inc.’s iPhone. About 56,000 customers abandoned T-Mobile USA last year, while Sprint, AT&T and Verizon Wireless all boosted their counts.
Talks have included discussion of Deutsche Telekom owning about 50 percent of a combined T-Mobile USA-Sprint, one person said. Sprint had revenue of about $32.6 billion in 2010, while T-Mobile USA recorded revenue of $21.4 billion.
T-Mobile USA is also discussing buying wireless spectrum from Clearwire Corp. (CLWR) as an alternative to a merger with Sprint, two people said. Deutsche Telekom’s Hoettges said last month that buying U.S. wireless spectrum from Clearwire is only one option for the German phone company. He ruled out an outright sale of T-Mobile in the U.S.
“We’re flexibly positioned,” Hoettges said today, adding that Deutsche Telekom is working on several options. “We’re not under pressure. We want the best solution.”
Susan Johnston, a Clearwire spokeswoman, didn’t immediately return a call before regular business hours. Sprint is the majority owner of Kirkland, Washington-based Clearwire.
Sprint is also in talks with LightSquared Inc., a wireless startup founded by billionaire Philip Falcone and backed by his Harbinger Capital Partners hedge fund, three people familiar with the talks said last month. LightSquared, which is seeking to sell 4G capacity in the U.S., may strike a deal to use Sprint’s cell sites and equipment to build out its network.
Sprint said in December it is going to spend as much as $5 billion over the coming three to five years to upgrade its network to allow it to combine the disparate spectrum bands it uses onto a single type of base station.
To contact the reporters on this story: Serena Saitto in New York at email@example.com;Jacqueline Simmons in Paris at firstname.lastname@example.org; Jeffrey McCracken in New York email@example.com.