Deutsche Telekom Considering Asset Swap for T-Mobile UK

­As rumours continue to name ever increasing numbers of companies interesting in bidding for T-Mobile UK, the German parent, Deutsche Telekom could be looking at an asset swap as opposed to a direct cash sale.

Two people familiar with the German telecoms operator told the Financial Times 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.

Deutschen Telekom T-Mobile

René Obermann, Deutsche Telekom’s chief executive was reported to be concerned that a sale of the UK division could throw doubt on the company’s ability to remain a global player – leading to an eventual break up of the company.

Deutche Telekom declined to comment on the news report.

Last month, the UK’s Guardian newspaper reported that Vodafone had offered to do a swap with Deutsche Telekom for its Turkish subsidiary, although the deal was denied by Vodafone.

Deutsche Telekom is reported to have been coming under pressure to sell the UK arm of T-Mobile due to ongoing poor performance at the mobile network. The German company’s management, however, believe new UK chief executive Richard Moat should be given the time to resuscitate it, so as to avoid a fire sale.

In it’s quarterly results, Deutsche Telekom wrote down by EUR 1.8 billion (US$2.4 billion) the valuation of T-Mobile UK – giving it a book value of around US$5.3 billion.

Orange move for T-Mobile fails
Orange is understood to have made an offer for T-Mobile’s British operation but has been rebuffed by the company’s German parent, Deutsche Telekom.

News of the approach, made within the last few months, comes as the new boss of T-Mobile UK, the country’s fourth-largest network, prepares to take up his post this week. He is expected to launch a restructuring of the business to turn around its flagging fortunes, but private equity bidders are understood to be circling already.

Vodafone is also rumoured to have proposed swapping its Turkish business for T-Mobile UK, which would give Deutsche Telekom a strong position in the eastern Mediterranean as it controls Greek operator OTE. This deal, however, has been denied by sources close to Vodafone.

Earlier this month, Deutsche Telekom created speculation that it was willing to offload its underperforming UK operation by writing down the value of the business on its books to just £3.3bn.

The German government and private equity company Blackstone, both shareholders in Deutsche Telekom, have previously pushed for a sale of the UK business. The German company’s management, however, believe new UK chief executive Richard Moat should be given the time to resuscitate it, so as to avoid a fire sale. At the time of Deutsche Telekom’s financial results this month, its chief executive, René Obermann, said the UK operation should be given a chance in the “medium term”.

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Tags: Deutsche Telekom, T-MOBILE, Telecommunications industry, Vodafone