Record M&A deal: Deutsche Telekom may merge with T-Mobile - Bloomberg

Mobile operator Deutsche Telekom is considering a full merger with its U.S. business T-Mobile, Bloomberg wrote, citing sources. This could lead to the creation of a transnational telecom holding company and become the largest public merger in history, the agency notes.

According to his interlocutors, they are discussing the creation of a new holding company that would offer a share swap to investors of both players. As a result, a single group may emerge, which will be traded on the exchange in the United States and Europe. Deutsche Telekom owns about 53% of T-Mobile.

Negotiations are at an early stage, the parameters of the deal may change, and its implementation will require political support in Germany and the U.S., the sources said. In particular, the German government and KfW Bank together control about 28% of Deutsche Telekom, which gives them significant influence on any deal, Bloomberg writes.

The merger would require consideration of commitments to maintain a core presence in Germany and to make significant investments in the United States, agency sources said. Deutsche Telekom would also need to convince investors that the benefits of creating a larger multinational telecommunications group outweigh the advantages of having two separate, specialized companies capable of attracting those interested in a particular market.

The merger could narrow the German company's valuation discount to T-Mobile, which generates most of the group's profits and create the world's largest mobile operator by capitalization, overtaking China Mobile, Bloomberg notes.

A Deutsche Telekom spokesman wrote in response to the agency's inquiry that the two companies "do not comment on market rumors regarding their corporate activities."

Shares of T-Mobile fell 1.5% at the end of trading on April 21, and over the past year have lost almost a quarter of their value. The average target price of the company's securities is $265.4, which implies a potential upside of 36% relative to Tuesday's closing level.

Most Wall Street investment houses recommend T-Mobile for a buy, with 25 analysts assigning bullish ratings to the carrier's stock and another five taking a neutral stance with a Hold rating.

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