VoiceStream Soars on Report of Possible Sale
Shares of VoiceStream Wireless Communications jumped more than 11% Tuesday on reports that Deutsche Telekom of Germany may buy the U.S. wireless firm for more than $30 billion.
VoiceStream officials would not comment, but analysts said that the Bellevue, Wash.-based mobile-phone carrier would be an attractive target for Deutsche Telekom because VoiceStream is building a national network with the same technology used in Deutsche Telekom’s mobile system in Europe.
“I think it makes so much sense that it should be real if it’s not,” said Ken Hyers, a wireless industry analyst at Cahners In-Stat Group.
Still, Hyers and others noted that in recent months, Deutsche Telekom has been rumored to be in talks with other phone companies as well, among them Qwest Communications International, Sprint Corp. and Global Crossing Ltd. In addition, VoiceStream could attract other suitors, they said.
“This just gets things started in terms of other companies coming out and showing interest” in VoiceStream, said Conrad Smith, a bond analyst at Lutheran Brotherhood Inc., which owns about 140,000 of the company’s shares. “VoiceStream has a national network and that’s what a lot of these players are looking for.”
Japan’s NTT DoCoMo Inc., WorldCom Inc. and Finnish phone company Sonera Oyj, which owns about 8.9% of VoiceStream, also are potential bidders for VoiceStream, Smith said.
With a variety of deal-related rumors swirling through the markets Tuesday, stocks of most of the players involved fell. VoiceStream shares rose $14.13 to $139.06 on Nasdaq, but Deutsche Telekom’s American depository receipts closed down $2.02 to $56.44 on the New York Stock Exchange.
Sprint shares fell $4.25, or more than 8%, to $47.50, and Sprint PCS tracking shares closed at $60.50, up $1.38, both on the NYSE. Qwest shares closed up 6 cents at $54.50, also on the NYSE, and WorldCom fell 88 cents to close at $44.44 on Nasdaq.
Speculation over potential deals with Deutsche Telekom heated up again in recent weeks after U.S. regulators filed suit to block a planned merger between WorldCom and Sprint on antitrust grounds--a move that investors say makes both telecommunications companies ripe for takeover.
WorldCom and Sprint have not formally called off their proposed merger, but they are expected to make an official breakup announcement soon. Analysts expect Deutsche Telekom to bid for Sprint, the nation’s third-largest long-distance provider.
Investors also expect WorldCom to pursue a U.S. wireless carrier such as VoiceStream, Nextel Communications or another company now that it will not win Sprint PCS as part of the Sprint merger.
Deutsche Telekom, which already owns a stake in Sprint, recently won shareholder approval to sell 1.5 billion new shares to fund acquisitions. At current prices, Deutsche Telekom’s stock sale would raise an estimated $85 billion.
“Once you put together that kind of war chest, you can’t just sit on it, you have to move,” said Hyers at Cahners In-Stat.
Some believe Deutsche Telekom’s move toward VoiceStream signals a reluctance to pursue Sprint, perhaps fearing it would trigger a lengthy political and regulatory fight. An alternative bid for Qwest, however, might prompt another arduous examination by state regulators because of Qwest’s ownership of local phone company US West.
In addition, some analysts are taking a wait-and-see approach, noting that Deutsche Telekom has had trouble completing mergers in the past.
“Deutsche is kind of the easy rumor right now, and I’m sure they are talking to a lot of people [about deals], but there’s really no way to know how serious the talks are,” said Linda Varoli, an analyst at Merger Insight.
The German government’s majority stake in Deutsche Telekom has hampered other acquisition efforts, such as the company’s attempt to buy Telecom Italia last year. Deutsche Telekom also failed in an attempt to buy Qwest and Global Crossing.
Some investors seemed concerned Tuesday about the price Deutsche Telekom may pay for a U.S. acquisition.
“People are worried that [Deutsche Telekom] won’t get a substantial return if it pays that much,” said Neil Robson, head of European equities at Baring Asset Management, who helps manage about $7 billion in assets. “Whatever you do in the telecom market, you have to pay a big premium.”
Overall, though, analysts seem to approve of a potential deal between Deutsche Telekom and VoiceStream.
VoiceStream, though not as well known as AT&T; Wireless or Sprint PCS, has grown into a powerful rival in recent years by acquiring smaller mobile phone carriers and purchasing wireless licenses covering much of the United States.
It was spun off from Western Wireless Corp. in 1999 and completed purchases of New York’s Omnipoint Communications and Aerial Communications in February and May of this year.
The company has not yet built networks in many markets where it holds licenses, but has signed up 1.8 million users in the 14 states where VoiceStream sells service. VoiceStream does not sell service in California, but a partnership with Cook Inlet Region Inc. will allow it to serve Los Angeles, San Francisco and Santa Barbara once the mobile networks are completed.
Hong Kong’s Hutchison Whampoa, which owns about one-quarter of VoiceStream, may reject an offer for the company as it pursues its own plans to offer high-speed wireless Internet services worldwide, some investors said.
“I don’t think they will sell the stake,” said Yvonne Leung, a fund manager at Towry Law (Asia) Ltd., which invests $2 billion in stocks in Asia. “If they do, they run the risk of people questioning their strategy going forward.”
*
Bloomberg News was used in compiling this report.
