Deutsche Telekom is looking for an asset swap deal with any would-be bidder for T-Mobile UK, its UK unit, to cushion the blow of pulling out of a big market.
Two people familiar with the German telecoms operator said that executives saw a swap for an asset in another country as the “preferred option” to either selling the business or merging it with a UK rival. But they warned that the unwillingness of a would-be bidder to part with another asset and the complexity of dealing with regulators in two countries could make this “dream deal” the most difficult to clinch.
René Obermann, Deutsche Telekom’s chief executive, has come under pressure from his main shareholders, the German government and Blackstone, the US private equity group, to divest the underperforming UK mobile phone business.
Two rival operators in the UK – Vodafone and Telefónica, which operates as O2 – are considering whether to bid for T-Mobile UK. France Telecom, on the other hand, is considering the case for a joint venture between its Orange UK unit and T-Mobile UK.
Mr Obermann was said to be aware that pulling out of the UK could throw into doubt Deutsche Telekom’s ambition to remain a global operator. As a result, he was keen to balance any withdrawal from UK with an asset swap in central or eastern Europe.
The people close to Deutsche Telekom said that Mr Obermann had cast an eye over Vodafone Turkey, second-biggest mobile operator in the country, and considered it an ideal target for an asset swap as it would complement Greece’s OTE, which Deutsche Telekom took over last year.
“But there are also other assets in central and eastern European countries that could help [Deutsche Telekom] shore up its position in markets in which it is already active,” one of those people said. The German operator is active in 15 countries in the area, including Austria and Greece.
Growth rates in eastern Europe typically outstrip those of the mature markets in western Europe and the US.
But Deutsche Telekom is also looking at the two other disposal options for T-Mobile UK – a straight sale, or a merger with the UK business of one of its three big competitors.
“€3bn would be the absolute minimum value for an outright sale,” one of the people with knowledge of Deutsche Telekom said, noting that this was equivalent to six times the UK subsidiary’s earnings before interest, taxes, depreciation and amortisation.
Deutsche Telekom’s deal for OTE last year was at a multiple of 7.2 times earnings, which would give T-Mobile UK a €3.6bn ($3.07bn) price tag. But those with knowledge of the matter admit that it will be hard to get that sort of price during the global economic crisis.
The company was also said to be open for putting T-Mobile UK together with a rival. One option Deutsche Telekom was said to have ruled out was merging it with 3, the UK mobile unit of Hong Kong’s Hutchison Whampoa.
Deutche Telekom declined to comment.
