Telecom stocks, led by Deutsche Telekom in the wake of AT&T's $39 billion purchase, boosted the European market today.
AT&T's $39 billion
dollar deal to acquire T-Mobile USA, the American arm of German company
Deutsche Telekom, has boosted European stocks and pushed Deutsche Telekom
shares 16 percent higher.
The acquisition-in addition to boding well for the
communications business and the European market-was a good indicator for the
U.S. economy as well, said Colin McLean, managing director at fund group SVM
Asset Management. "The major deal for Deutsche Telekom is also good
for Vodafone as it shows the U.S. is positive on the cell phone industry,"
The two companies announced
on Sunday the cash-and-stock transaction currently valued at approximately $39
billion. Deutsche Telekom is also to receive one seat on AT&T's Board of
Directors. The acquisition will increase AT&T's infrastructure investment
in the U.S. by more than $8 billion over seven years, as the company builds out
its 4G LTE (Long-Term Evolution) network.
AT&T will pay $25
billion in cash for T-Mobile USA, in addition to $14 billion in AT&T
shares. Under the terms of the agreement, AT&T has the right to increase
the portion of the purchase price paid in cash by up to $4.2 billion with a
corresponding reduction in the stock component. Deutsche Telekom said it plans
to reduce its debt by approximately on third, to 13 billion euros. Approximately
5 billion euros are to be used for share buybacks after closing and required
resolutions in accordance with the legal requirements.
"As the biggest single share
holder of AT&T, we will also significantly benefit from their strong
dividend. With the excellent result of this transaction, we will be able to
continue to develop our company," said Deutsche Telekom CFO Timotheus H??Ã©ttges.
"At the same time, we will be able to reduce our debt and initiate one of the
biggest share-buyback programs in both Germany as well as in the European
How the deal would affect
AT&T's small-business customers was not immediately clear. U.S. small
businesses (with less than 100 employees) spent more than $50 billion in 2009
on telecommunications services and equipment, according to industry research
firm AMI-Partners. The company has begun offering more services aimed at the
midmarket space, such as Backup and Go, which allows users to access their
backed-up PC data from their iPhone, and upload and collaborate on files.
AT&T also offers Webinars and conducts surveys on the mobile habits of small
and midsize businesses.
Small-business owners are
increasingly turning to mobile devices, applications and networks to help run
their companies, a recent survey from AT&T found. Nearly three-fourths (72
percent) of respondents indicated they use mobile applications in their business,
with roughly 38 percent reporting they could not survive-or it would be a major
challenge to survive-without mobile applications.