Deutsche Telekom is exploring a potential tie-up with T-Mobile US, a move that could create a $300 billion telecommunications giant. This deal would surpass the 1999 Vodafone-Mannesmann merger as the largest M&A transaction ever.
Deutsche Telekom currently holds a 53% stake in T-Mobile US. A combined entity aims to reignite growth in a struggling telecom sector and enhance scale for competition in both the U.S. and Europe. However, the merger faces potential structural, geopolitical, and regulatory hurdles.
One proposed structure involves a new holding company making an all-share offer for both firms, with existing shareholders owning the new entity, which would list in both the U.S. and Europe. This structure is similar to the 2018 merger between Linde and Praxair.
The industrial rationale for the merger is to increase the group's valuation. T-Mobile US shares trade at a significantly higher multiple (eight times EBITDA) compared to Deutsche Telekom (4.4 times EBITDA). While a larger entity could offer greater scale and simplification, potentially enabling further M&A, analysts caution it might still trade at a discount relative to pure U.S. players.
Significant approvals would be required. Any capital raise needs support from 75% of Deutsche Telekom shareholders and governmental approval from Berlin, as the German state holds a substantial stake. The transaction's size would also trigger reviews by the U.S. Department of Justice's Antitrust Division, the Federal Communications Commission (FCC) for foreign ownership issues, and potentially the Committee of Foreign Investment in the United States (CFIUS).