Deutsche Telekom Pitches U.S. Deal After Years Trying: Timeline
(Bloomberg) -- After 17 mostly difficult years in the U.S., Tim Hoettges has brokered a deal that would be Deutsche Telekom AG’s defining moment -- if regulators let it through.
Deutsche Telekom’s chief executive officer this weekend hammered out the details of T-Mobile US Inc.’ $26.5 billion acquisition of Sprint Corp. with his counterpart at SoftBank Group Corp., Masayoshi Son.
“This is the result of a long back story,” Hoettges said on a call with reporters Monday. “I’ve been working on this deal for over seven years.”
T-Mobile’s contribution to Deutsche Telekom’s earnings already overtook all European divisions in 2016 and the deal would further shift its focus across the Atlantic, where the German company sees a more “benign and predictable” regulatory environment market, said Berenberg analyst Usman Ghazi. Hoettges has been among the most vocal telecom executives pushing for more investment-friendly regulatory conditions in Europe.
“With a finite pool of money, he has two buckets and he would rather put it in the U.S. bucket,” Ghazi said.
T-Mobile US’s history is one of lots of competitive pain, several failed deals and more recently, commercial success under maverick CEO John Legere. An approved purchase would crown Hoettges’s 18-year career at Deutsche Telekom and elevate a U.S. asset that for many years was a problem child for the former German monopoly.
But a deal faces a thorough inspection from regulators, who opposed AT&T Inc.’s attempt to buy T-Mobile in 2011. The challenge now is convincing regulators that the world has changed since 2014, when a merger of T-Mobile US and Sprint was firmly rebuffed by the Justice Department.
2001: Coming to America
Deutsche Telekom entered the U.S. market in 2001, when then-CEO Ron Sommer bought Voicestream and Powertel for more than $30 billion. The deal was criticized as too expensive and Sommer stepped down just a year later. Meanwhile, a young finance and M&A expert named Tim Hoettges was rising through the ranks at the Bonn-based carrier.
2001-2010: The Painful Years
For the better part of the early 2000s, T-Mobile US caused its parent headaches, contributing to quarterly losses and significant tax expenses. Deutsche Telekom played with the idea of selling the business as early as 2002 under interim CEO Helmut Sihler, yet abandoned that strategy less than a year later under successor Kai-Uwe Ricke. Instead, it invested billions of dollars in spectrum and infrastructure, hoping for a turnaround. By 2010, then CEO Rene Obermann called T-Mobile a "cash cow," yet the market remained challenging.
2011: Failed AT&T sale
T-Mobile was the fourth-largest carrier and losing customers (partly because it didn’t offer access to the wildly popular iPhone) when Deutsche Telekom tried to sell the business to AT&T for $39 billion in cash and stock. Obermann and Hoettges, then CFO, were bullish on the prospects of a deal and the opportunities the cash would mean for consolidation in Europe, yet AT&T finally pulled out because of significant resistance from U.S regulators. T-Mobile did get a break-up fee of $3 billion in cash and a seven-year roaming deal from AT&T that expanded its network.
John Legere was named T-Mobile’s CEO in September 2012, and has since engineered a turnaround, adding millions of customers and bypassing Sprint as the third-biggest player.
2013-Today: The Sprint Saga
Efforts by Sprint to buy a majority stake in T-Mobile in 2014 collapsed when the former abandoned the talks, citing expected regulatory hurdles. Last November, talks of T-Mobile buying Sprint ended when Hoettges and Son failed to agree on details of the deal, despite a meeting over dinner. By then, Legere had turned T-Mobile into the market’s premier challenger with its "un-carrier" strategy of aggressive pricing and perks like free video streaming and unlimited data plans for consumers hooked on YouTube or Netflix.
The new company will "supercharge" the business model and have the scale and means to invest in 5G all over the U.S., Hoettges said Monday. And his talks with Son created deep trust between Deutsche Telekom and SoftBank, meaning both companies could embark on more joint projects, he said.
"This is opening up for us a totally new door and new opportunities in the way we cooperate going forward,” Hoettges said.
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