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Telekom buys One2One
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August 6, 1999: 7:17 a.m. ET
Germany's No. 1 phone company gets cellular firm in $13.6B deal
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LONDON (CNNfn) - Deutsche Telekom, Europe's biggest phone company, said Friday it won the prolonged battle for British cellular provider One2One with a bid worth 8.4 billion pounds ($13.6 billion), including assumption of debt.
Deutsche will pay 6.9 billion pounds in cash and assume 1.5 billion pounds in debt to acquire Britain's No. 4 cellular phone company, a price that was less than some analysts had expected.
Investors welcomed the deal, although Deutsche Telekom shares reversed early gains in Frankfurt to stand at 37.60 euros, down a fraction. Cable & Wireless stock rose 2 percent to 746 pence in London.
One2One's owners, Britain's Cable & Wireless and MediaOne Group (UMG) of the United States, put the business up for sale in March. Initially they wanted about 11 billion pounds for One2One, but several prospective buyers pored over the books and decided the price was too steep.
Eventually, other possible buyers such as France Telecom (PFTE) and Germany's Mannesmann (FMMN) dropped out of the bidding, leaving Telekom the clear favorite. The price had come down so much that Cable & Wireless and MediaOne were considering an IPO for One2One.
One2One, the smallest of Britain's four cellular companies, has 2.6 million subscribers, or about 16 percent of the market. In the year ended in March, it had operating profits of 112 million pounds, compared with a loss of 39 million pounds a year earlier. Following the acquisition, Telekom will have about 12 million mobile subscribers.
Deal looks expensive
Analyst Jonathan Shantry at Credit Lyonnais said the deal still looks expensive relative to the price for rival cellular operator BT Cellnet when it was bought by majority shareholder British Telecom (BT.A) last month.
"The worry is that Telekom may be spending for spending's sake," Shantry said.
Still, Telekom can afford the deal, having raised 10.6 billion euros ($11.4 billion) in a secondary issue of shares recently. It sees the purchase as vital to its growth strategy, calling Britain one of Europe's most important markets.
Telekom also sought One2One for its innovations, noting the phone company had boosted cellular usage in Britain by marketing prepaid calling cards, a tool that is still little used in Germany.
Keeping up with rivals
Telekom is catching up with former partner and now bitter rival France Telecom in establishing a presence in Britain's communications sector, industry analysts said. France Telecom recently bought a stake in cable operator NTL (NTLI).
But "Telekom (still) needs to sort out its international strategy, which is in tatters," said Shantry, who has a "reduce" rating on the stock.
Deutsche Telkom jilted France Telecom in favor of an ultimately unsuccessful attempt to merge with Telecom Italia earlier this year. Italia was eventually bought by Olivetti, leaving relations between the French and German companies at a low ebb.
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