Deutsche Telekom may end up selling its share of Everything Everywhere if its proposed US$39 billion deal to sell T-Mobile USA in a merger with AT&T falls through. The company will need to cut its cost base in order to protect its dividend, which could be hit if the AT&T deal fails, investment bankers have told Reuters.
Deutsche Telekom currently has a 50 percent stake in Everything Everywhere, the UK joint venture it set up with France Telecom to run the T-Mobile and Orange networks in 2010. Everything Everywhere is Deutsche Telekom’s only non-core asset that it could sell to generate the amount of cash needed to invest in its US division.
T-Mobile USA – which has 11 percent of the US market – lacks spectrum compared to its rivals and needs to build a 4G network. Head of telecoms research at investment bank Espirito Santo, Will Draper, told Reuters that around US$10 billion of investment is needed to make T-Mobile USA competitive, along with US$3 billion per year to maintain it.
A senior banker told Reuters that Deutsche Telekom is “resigned” to the AT&T deal failing and will come under pressure from shareholders to take action. However, that person said no formal discussions have taken place regarding the UK business.
AT&T is reported by Bloomberg to be considering whether to offer to give up a larger portion of assets – as much as 40 percent according to the source – than it has offered previously, to keep the T-Mobile USA merger alive. The US Justice Department is suing to block the deal on the grounds that it would restrict competition in the US wireless market while US regulator, the Federal Communications Commission, referred the deal to an agency judge for consideration last week.
Everything Everywhere said on Friday that it secured a US$875 million financing facility to pay back debt currently held by parent companies Deutsche Telekom and France Telecom. The term loan and a multicurrency revolving credit facility has been offered by a group of banks including Bank of Tokyo-Mitsubishi UFJ, Barclays Capital, HSBC, JP Morgan, Lloyds Bank, Morgan Stanley and RBS. The parent companies provided a £1.25 billion loan for help with the formation of the joint venture.