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VoiceStream rally sputters
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July 20, 2000: 6:01 p.m. ET
Investors wait on sidelines as rumors of $53 billion Deutsche Telekom loom
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NEW YORK (CNNfn) - Investor enthusiasm over Deutsche Telekom AG's reported $53 billion bid for U.S. mobile-phone operator VoiceStream Wireless Corp. quickly waned Thursday over concerns about the high cost of the deal and potential regulatory concerns.
People familiar with the situation told Reuters and the Wall Street Journal that the German firm had offered $205.60 in cash and stock per VoiceStream (VSTR: Research, Estimates) share, a 41 percent premium over the company's closing price of 145-1/2 Wednesday. Earlier reports had indicated the company would fetch only around $35 billion.
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CNNfn's Jim Boulden reports on VoiceStream's rising value.
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Neither company would comment on the report. A source close to Deutsche Telekom (DT: Research, Estimates), Germany's largest firm by market value, told CNNfn that talks between the firms had gone on into the early hours of Thursday.
Word of the deal sent VoiceStream shares as high as 173 in after-hours trading Wednesday, when word of the bid first emerged. But the company's stock closed Thursday at 153, up 7-1/2 for the day but well below its intra-day high of 161.
Analysts blamed investors' about-face on several factors, including the failure of a firm deal to materialize and the declining value of Deutsche Telekom's [FSE:FDTE} stock.
The German company slumped more than 6 percent to close at 56.60 euros in Frankfurt Thursday while its American depositary receipts fell 2-3/8 to 52-9/16. Based on Deutsche Telekom's reported offer of 3.2 shares of its stock plus $30 per share in cash, that would lower the deal's total value to $198.20 per share, or roughly $2 billion.
 Investors pushed the company's share price down because of the deal's expensive price tag and concerns that it might attract other bidders, pushing the transaction's cost higher, analysts said.
Still, analysts called Deutsche Telekom's bid a rich but necessary move, given the interest shown in the Bellevue, Wash.-based company by other large telecommunications firms such as France Telecom and Japan's Nippon Telegraph and Telephone.
All three companies have expressed a desire to capture a sizable share of the U.S. wireless market, but analysts said there are only two viable acquisition candidates that fit their needs: VoiceStream and Nextel Communications (NXTL: Research, Estimates).
"It's simple supply and demand," said Christopher Larsen, an analyst with Prudential Securities. "The supply of wireless companies you can buy in the United States has not changed. The number of companies interested in getting into the U.S. market seems to be going up every day."
"If they were the only bidder, [the bid] probably would have been closer to $175," agreed Frank Marsala, an analyst with ING Barings.
A possible counter-bid?
Marsala said Japan's NTT DoCoMo, which reportedly was considering a $52 billion bid for VoiceStream, is the biggest threat to Deutsche Telekom.
DoCoMo, the world's second-largest wireless operator by subscriber numbers behind Britain's Vodafone AirTouch (VOD), has several partnerships in mobile services with Hong Kong's Hutchison Whampoa, a 23 percent shareholder in VoiceStream. DoCoMo's strategy is to aggressively expand from its Japanese base into the international arena.
France Telecom also was rumored to be exploring a bid, according to press reports Thursday. The Paris-based company declined to comment on the report, but a source familiar with the company's thinking said it is unlikely to make a bid because it still is digesting its $40 billion acquisition of U.K. mobile phone operator Orange in May.
Still, investors weren't counting the company out. One arbitrageur noted both companies share strong ties to Hong Kong investment conglomerate Hutchison Whampoa, which owns a roughly 23 percent stake in VoiceStream and owned a nearly 45 percent stake in Orange, which reportedly is pressing France Telecom to get into the game.
"They are the premier world player in this industry," the arbitrageur said.
Hutchinson Whampoa has repeatedly denied comment on possible VoiceStream bids.
Similar technologies drive potential deal
VoiceStream provides digital wireless services to more than 2.3 million customers in 19 of the top 25 U.S. local markets. It is one of the few independent wireless phone companies remaining in the United States, and its value to Deutsche Telekom is underpinned by the fact that it uses GSM technology, the digital mobile-phone standard used in Europe.
Nextel ranks as the largest U.S. independent mobile phone operator with more than 5.6 million U.S. subscribers, but uses a different technology from Deutsche Telecom's, eliminating the international roaming synergies the German company could wring from a merger with VoiceStream.
Larsen said Deutsche Telekom's deep pockets could help VoiceStream go after additional licenses to expand its reach.
 The reported offer may indicate Deutsche Telekom has called off its pursuit of Sprint Corp. (FON: Research, Estimates), which recently canceled its $117 billion merger with Worldcom Corp. (WCOM: Research, Estimates). The German company owns a 10 percent stake in the Westwood, Kan.-based Sprint, but indicated that during the Worldcom merger it would be willing to sell its shares.
Still, analysts expressed concerns that any deal for VoiceStream could raise significant regulatory concerns in the United States, where some officials are wary of uniting a U.S. firm with a company that is 57 percent owned by the German government.
Larsen said while less complicated than a deal for Sprint, any agreement with VoiceStream will attract a lot of attention from U.S. regulators and politicians alike.
"VoiceStream is one of the least controversial names out there for Deutsche Telekom to buy because it doesn't have Internet backbone, it's not a local exchange company, it's not a nationally recognized brand name and apparently they don't have any sensitive government contracts," he said. "So it mitigates [the concern], but it certainly doesn't make it easy by any means."
"My feeling is they will get by it," Marsala said. "It's hard for me to think that we're going to put up regulatory barriers to keep foreign companies from investing or buying our companies."
Any deal for VoiceStream still would leave Deutsche Telekom without a significant presence in the U.S. fixed-line telephone market.
According to analysts, the most likely landline target for Telekom would be Qwest Communications (Q: Research, Estimates), the No. 4 U.S. long-distance company behind Sprint. 
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Deutsche Telekom
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