Deutsche Telekom, merger with T-Mobile on the table for a global telecoms bigwig

A dossier that, if it took final shape, would rewrite the global geography of telecommunications. Deutsche Telekom is said to be considering a full combination with its US subsidiary T-Mobile Us, for a transaction that would create a multinational telecommunications champion and which, according to Bloomberg, which spread the rumour, could be the largest M&A transaction ever seen between listed companies.

No comment from the two companies, but the hypothesis under consideration, still at a preliminary stage, involves the creation of a new holding company that would launch a share offer on the shares of both Deutsche Telekom and T-Mobile Us. The result would be a unified corporate structure, simpler in industrial and ownership terms, controlled by the current shareholders of the two companies. Among the options under consideration would also be a listing in the United States and one on a large European market, while the details of the eventual architecture remain to be worked out.

The starting point is clear: Deutsche Telekom is already the largest shareholder in T-Mobile, with a stake of around 53%. But the issue is not only ownership. In the background there is also a question of market valuation. Indeed, Deutsche Telekom trades at lower multiples than T-Mobile, even though it derives the bulk of its profits from its US subsidiary. A full integration could therefore reduce this valuation discount, as well as give the new group even more critical mass in terms of future acquisitions. According to Bloomberg, the resulting entity would become the world's largest wireless operator by capitalisation, surpassing China Mobile.

The numbers help to understand the scale of the transaction. T-Mobile Us is capitalised at around $217 billion, after a drop of 22% over the past year. Deutsche Telekom, for its part, is worth around EUR 141 billion in Frankfurt, or USD 166 billion, down 10% over the same time period. The sum makes clear the size of the possible deal and explains why the dossier is being watched as a potential watershed for the entire industry.

But the road is not without obstacles. The first is political. To go ahead would require explicit support from both Berlin and Washington. The German government and the state-owned bank KfW together hold about 28% of Deutsche Telekom, a share that gives German institutions decisive weight over any reorganisation. To get the go-ahead, the companies may have to put on the table commitments on a strong industrial presence in Germany and significant new investments in the US. It also remains to be seen whether Berlin would be in favour of a deal that would end up diluting the relative weight of the public hand in the new group.