Deutsche Telekom Stages Huge IPO

From Bloomberg Business News

Deutsche Telekom said Sunday that it sold its shares at 28.50 marks each, raising as much as $13.2 billion for the world's third-largest telecommunications company in one of the biggest initial public offerings ever.

Telekom sold 623 million shares, or about a 24% stake, toward the upper end of the 25- to 30-mark expected price range to the public and employees. The share price values Telekom at about $49.7 billion and ushers in a new era for the company and for the German equities market.

An unprecedented marketing campaign targeting individual investors fueled demand for shares in the offering, which was five times oversubscribed, with 67% of the shares going to German investors amid strong domestic demand. Telekom may sell an additional 90 million shares by year-end if demand is strong enough.

"Private demand was an important motor for the oversubscription," Telekom Chief Executive Ron Sommer said. There was also high demand from international investors, he said.

At a news conference the day before trading, Deutsche Telekom said 14% of the shares were sold in the U.S., Canada and Latin America. Britain got 8% of the shares, the other European countries received 6%, and Asia and the rest of the world received 5%.

The selling price in the U.S. is $18.89 per American depositary receipt, Telekom executives said.

Trading begins today in Frankfurt and New York, and in Tokyo on Tuesday.

Some, though, thought the price per share was too much.

"The high oversubscription is largely a consequence of marketing tricks," Hoppenstedt investors service said. "Telekom has considerable structural weaknesses: high debt, too many employees, a bureaucratic mentality."

The offering had a hard time attracting interest among U.S. institutional investors, who said the shares were pricey given the debt, bloated work force and upcoming competition from battle-hardened telecommunications companies such as AT&T; Corp. Non-German investors also didn't get a discount on the shares, a tax break or a dividend higher than benchmark German government bonds.

"For people not getting the yield, by definition it's somewhat less appealing," said Michael Holland, chairman of Holland & Co., a New York investment firm, who didn't buy shares in the IPO. "There are competitively priced and more attractive investments in the telecommunications industry than this one."

Some analysts had predicted Deutsche Telekom would shy away from the maximum price of 30 marks per share to avoid angering the individual investors it worked so hard to court.

If the company sells, as expected, the additional shares, the IPO will raise about 19.7 billion marks, making it the largest-ever IPO, eclipsing British Petroleum's $12.4-billion 1987 IPO. If only the minimum 600 million shares are sold, the sale will raise about 17.1 billion marks, or about $11.3 billion.

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