ATandT, Deutsche Telekom Deal Boosts European Stocks

 
 
By Nathan Eddy  |  Posted 2011-03-21
 
 
 

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," he told Reuters.

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??éttges. "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 telecommunication industry."

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. 

 


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