Deutsche Telekom Dividend Pressured After AT&T Deal Collapse

December 27, 2011, 2:16 AM EST By Cornelius Rahn

(Updates with CEO’s additional role in 13th paragraph. For more on AT&T’s failed T-Mobile bid, see EXT5 .)

Dec. 21 (Bloomberg) -- Deutsche Telekom AG’s failure to sell its T-Mobile USA unit to AT&T Inc. for $39 billion may put pressure on the German company to reduce shareholder payouts after next year, investors said.

With the collapse of the deal, stakeholders will miss out on the Bonn-based company’s plan to use the proceeds to repurchase 5 billion euros ($6.5 billion) in stock, cut debt, and receive an 8 percent stake in AT&T. Spending on improving T- Mobile’s network and acquiring spectrum may cost as much as $9 billion, said RBC Capital Markets analyst Jonathan Atkin.

That may detract from Chief Executive Officer Rene Obermann’s efforts to contain damage from the European debt crisis on consumer and corporate spending and to return the region to growth. Spanish rival Telefonica SA last week became the first former phone monopoly in Europe to cut a dividend forecast, sparking similar cuts at Telekom Austria AG. Obermann yesterday wouldn’t commit to dividend levels beyond 2012.

“They won’t fiddle with the dividend right away, but it’s after that where it gets interesting,” said Andreas Mark, a fund manager at Union Investment in Frankfurt, which manages about 170 billion euros including Deutsche Telekom and AT&T shares. “They’re facing the prospect of having to put in money in the medium term.”

Bandwidth Demand

Deutsche Telekom confirmed its shareholder returns program through 2012, including an annual dividend of at least 70 euro cents and buybacks totalling as much as 1.2 billion euros over three years.

Phone companies worldwide are facing increasing costs for network build-outs and upgrade as the use of smartphones such as Apple Inc.’s iPhone to download movies and pictures surge. That has put to test executives’ decisions on how they use the cash generated from phone services.

Deutsche Telekom’s stock has a yield of 7.8 percent, in line with the average for European telecommunications companies, according to data compiled by Bloomberg. Madrid-based Telefonica, even after the lowered 2012 dividend forecast, still yields 12.1 percent, one of the highest in the industry.

Deutsche Telekom today slid 0.3 percent to 8.80 euros at 4 p.m. in Frankfurt, valuing the company at 38.1 billion euros. AT&T rose 0.3 percent to $29.20 in New York.

Slump Accelerates

European governments and consumers are trimming spending to help weather the region’s debt crisis, which started in Greece in 2009. Deutsche Telekom controls the country’s biggest phone company, Hellenic Telecommunications Organizatio SA.

Deutsche Telekom aims to return its European business, which also encompasses countries such as Poland, Romania and Hungary, to growth by 2013. It has also promised to respond to data-traffic growth in the region by rolling out faster wireless and fixed-line infrastructure.

The phone company has concentrated on cost cuts to limit the impact of declining sales on profit across its markets. The revenue slump is set to accelerate to 5.2 percent this year after 3.4 percent last year, according to analysts surveyed by Bloomberg.

“In the current conditions, achieving growth is very, very difficult, that’s why the shares need another attractor,” Obermann said yesterday. Deutsche Telekom “has been a stable provider of payouts in recent years, that’s important for long- term shareholders. And we need those long-term shareholders because the transformation of the company is a task for generations.”

Cash Injections

Obermann is taking on additional task starting Jan. 1, when he will oversee the company’s products and innovation strategy after Ed Kozel’s departure. The job includes strengthening nascent businesses including telemedicine, smart electricity networks and software and music downloads.

AT&T and Deutsche Telekom on Dec. 19 agreed to abandon this year’s largest acquisition after deciding that opposition by U.S. regulators would be too difficult to surmount. The deal would have created a new leader in the U.S. wireless market ahead of Verizon Wireless. The German phone company will receive a breakup package including $3 billion in cash, wireless frequencies and a roaming agreement.

With no realistic buyer for T-Mobile in sight, other forms of combinations are the more likely way forward in coming years for the business, said Bruno Lippens, a fund manager at Pictet Asset Management in Geneva, which holds about 14 million Deutsche Telekom shares. That would probably require cash injections and may weigh on Deutsche Telekom’s free cash flow, or operating cash flow minus capital spending, he said.

‘Strategic Priorities’

“If you’re looking for a plan B now you’ll probably have to invest more in this business,” Lippens said. “And if you don’t have the cash available because you are allocating it to fiber in Germany, and dividends -- and you probably need to do something in Greece as well -- then it just adds to this whole list of strategic priorities that the management has.”

Still, Deutsche Telekom has more room to manoeuvre on dividends than Telefonica and Telekom Austria because it pays out a lower ratio of its free cash flow to investors, Union Investment’s Mark said.

If the company does trim shareholder returns in coming years, it will probably skip share buybacks before cutting the dividend, he said. An alternative would be limiting investments in German and European infrastructure, said the fund manager.

Before Deutsche Telekom agreed on the deal with AT&T, it had also held talks with Sprint Nextel Corp., people with knowledge of the matter said in March. Sprint remains a potential suitor for T-Mobile in the future, analysts say.

“The other alternatives at the time didn’t look nearly as attractive to all stakeholders, including the customers, including the U.S. agenda, the national broadband plan,” Obermann said during an interview, when asked whether it would have been wiser to forge a linkup with Sprint instead of AT&T. “We have to take the proceeds now and move on and make the best out of the situation.”

--Editors: Kenneth Wong, Heather Harris

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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Deutsche Telekom Says No Scope for Talks on Greek OTE Stake

May 11, 2011, 6:13 AM EDT By Cornelius Rahn

(Updates with visit to Greece in fourth paragraph.)

May 11 (Bloomberg) -- Deutsche Telekom AG said there is “no scope for negotiations” if the Greek government chooses to use an option to sell another 10 percent stake in Hellenic Telecommunications Organization SA to the German company.

“If the Greek government wants to sell us the stake, it will do so,” said Andreas Leigers, a Deutsche Telekom spokesman, after Financial Times Deutschland reported the company is trying to postpone the purchase. The phone operator is standing by its obligations in the shareholders’ agreement, Leigers said, adding that there are no plans to buy additional shares in the company, also known as OTE, in the market.

Greece said Apr. 15 that it wants to sell its 20 percent OTE stake this year as part of a 50 billion-euro ($72.1 billion) asset sale plan to cut the highest debt ratio in the European Union. It has the right to sell 10 percent to Deutsche Telekom at 15 percent above the average market price of the past 20 days by the end of 2011, Leigers said.

Deutsche Telekom’s management and supervisory board will travel to Greece at the end of May, Leigers said. The visit will involve a meeting with local executives.

Deutsche Telekom, with a 30 percent stake, fully consolidates OTE, determines its management, and has the right of first refusal for the remainder of the government holding. The stock rose 2.1 percent to 7.15 euros as of 11:45 a.m. in Athens trading today, valuing the government’s stake at about 700 million euros.

--Editors: Simon Thiel, Robert Valpuesta.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net

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Telekom Austria Has Wider-Than-Expected Loss on Job-Cut Cost

May 11, 2011, 5:18 AM EDT By Jonathan Tirone

(Updates with CFO’s comments in third paragraph.)

May 11 (Bloomberg) -- Telekom Austria AG, the country’s biggest phone network, had a wider-than-estimated first-quarter loss after the company booked 184.1 million euros ($113.4 million) in one-time expenses to cut more than 500 workers.

The net loss was 79.2 million euros compared with profit of 91.2 million euros a year earlier, the Vienna-based company said today in a statement. That exceeded the 53.1 million-euro average loss estimate of five analysts surveyed by Bloomberg. Sales declined 0.7 percent to 1.12 billion euros, compared with the 1.11 billion-euro estimate of 12 analysts.

“Over the next years, personnel-related costs will be reduced,” Chief Financial Officer Hans Tschuden said in a separate statement. Spending related to workforce reductions in years to come will be reflected in quarterly results.

The former Austrian phone monopoly runs mobile networks in seven eastern European countries and has been trying in its home market to staunch fixed-line losses and drop long-time workers to boost profitability. Telekom Austria bid 1.1 billion euros on May 4 to buy Serbia’s state telephone company, an offer that the Balkan nation’s government rejected as inadequate.

Telekom Austria reiterated that 2011 earnings before interest, tax, depreciation and amortization will total as much as 1.6 billion euros. The company is targeting sales of up to 4.6 billion euros.

--Editors: Tom Lavell, Zoe Schneeweiss

To contact the reporter on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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