Sprint, WorldCom Stumble Into Crosshairs of Deutsche Telekom

Deutsche Telekom's (DT) timing may work out perfectly.

The big German telecom company is finishing an $8 billion global bond offering just as Sprint (FON) and WorldCom (WCOM) are dissolving their merger agreement, thanks to antitrust concerns in the U.S. and Europe. So Deutsche Telekom will soon find itself flush with cash and freed from the constraints an offering imposes. (Serious merger negotiations during an offering would be considered a material event, which could force a company to make the talks public.)

"Deutsche Telekom is not going to be the same company in six months," says one European mergers and acquisitions banker. When the offering is finished, which is expected to happen next week, "the company is free to have all the [serious] discussions its wants."

And Deutsche Telekom has long said it has an interest in entering the U.S. Now it has two more possible targets, Sprint and WorldCom.

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Deutsche Telekom wants a four-pillared presence in the U.S. that includes mobile telecommunications, consumer Internet services, data and Internet protocol systems solutions and broadband network access, according to a company spokesman. The company has acknowledged having had talks in the past with U.S. operators, but the spokesman declined to comment on specific acquisition targets.

Most recently the company caused a spat between merger partners Qwest (Q) and U S West (USW). Deutsche Telekom reportedly approached Qwest last winter about a deal, without U S West's knowledge.

Those discussions, however, were initiated when it was assumed that No. 2 U.S. long-distance carrier WorldCom would successfully acquire Sprint and its valuable wireless assets.

Sprint would give Deutsche Telekom a nationwide wireless footprint, an Internet backbone and an Internet service provider, EarthLink (ELNK), of which Sprint owns about 27%. WorldCom, meanwhile, would offer Deutsche Telekom its valuable Internet backbone business UUNet, among other assets. Both companies provide access to the domestic long-distance market, but that's less of a top priority, says one person close to Deutsche Telekom.

But, of course, WorldCom and Sprint aren't the only two choices. Deutsche Telekom also could go after Global Crossing (GBLX), another company widely considered an attractive acquisition target for Deutsche Telekom, which has the financial wherewithal to approach any one of these three carriers. The Hamilton, Bermuda-based Global Crossing operates a state-of-the-art network capable of global data transmissions.

In 1999, Deutsche Telekom reported $1.82 billion in cash flow, and it garnered $2.76 billion in cash this year from the sale of its 29% stake in Global One, an international telecom business managed at one time by Deutsche Telekom, Sprint and France Telecom (FTE). Proceeds from the current $8 billion bond offering are expected to fund the purchase of spectrum licenses for universal mobile telecommunications systems, as well as potential acquisitions abroad.

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