Updated from 2:31 p.m. EDT
deal that faces opposition from Washington lawmakers,
, majority owned by the German state, agreed to buy U.S.-based
for a $55.7 billion package of stock, cash and debt, the companies said Monday.
Shares in both companies plunged on the news. Deutsche Telekom's American depositary receipts finished Monday regular trading down 6 1/2, or 13%, at 45. VoiceStream finished down 19 3/4, or 13.2%, at 130.
The terms of the deal call for Deutsche Telekom to pay 3.2 of its own shares plus $30 in cash for each VoiceStream share. Based on Deutsche Telekom's closing price Friday of $51.50, the deal represents a 30% premium to VoiceStream's closing price Friday of $149.75.
The deal also includes a $5 billion cash investment in the form of convertible security. The investment would give Deutsche Telekom a 10% stake in VoiceStream, even if the larger merger deal fails.
The deal would give Deutsche Telekom its long-sought presence in the U.S. telecommunications market.
VoiceStream, based in Bellevue, Wash., is still only a year old. It is the country's eighth-largest wireless company, but has a growing network with the potential to reach 70% of the U.S. market, with licenses to serve about 220 million people in 23 of the top 25 U.S. markets. Perhaps more importantly, it is the only U.S. wireless company that uses technology similar to the GSM standard that is used throughout Europe.
"American consumers will see an acceleration in the rollout of state-of-the-art GSM technology," said Ron Sommer, chairman and chief executive officer of Deutsche Telekom, in a statement. "More Americans will be able to have one phone, with one number, that they can use virtually anywhere in the world -- whether they are in Minneapolis, Munich or Melbourne."
If completed, the deal would mark the first time a U.S. telecom was bought by a company in which a foreign government holds a controlling stake. Some U.S. legislators -- citing anticompetitive and national security concerns -- moved to block the deal last week after rumors of the impending agreement flooded the market. Deutsche Telekom is 58% owned by the German government, although the new stock it plans to issue to complete the deal would reportedly dilute this stake to 48%.
Telephone and Data Systems
, the second-largest shareholder in VoiceStream, released a statement Monday giving its blessing to the deal. TDS owns 14% of VoiceStream, a stake it garnered through the May merger of
, of which TDS owned 81.5%, and VoiceStream.
Wednesday Sen. Ernest F. Hollings, D-S.C., drafted a bill that would block the
Federal Communications Commission
from waiving restrictions that apply to companies that are more than 25% owned by foreign governments.
Hollings' opposition to the deal centers around anticompetitive concerns, with national security issues playing a secondary role, according to a spokesman at the senator's office. Under this thinking, a company in which a government owns a significant share would not be subject to the same competitive pressures of its rivals, and thus would distort the marketplace. It would have easier access to capital at lower interest rates, and the promise of being bailed out by the government, the spokesman said.
Art Poole, an analyst at
Raymond James & Associates
who covers VoiceStream, said regulatory concerns and the lack of a collar on the deal -- meaning there is no lower limit on the price of the stock portion should Deutsche Telecom stock fall precipitously -- are weighing on VoiceStream's share price.
Some investors are likely keying on some of the details of the deal price, which values VoiceStream at about $20,000 per customer, considerably higher than most recent wireless deals. However, "That's not a relevant benchmark," he said. "You have to look at the growth potential of VoiceStream."
And with VoiceStream's customer base -- a potential 220 million subscribers -- the growth potential is massive, he said. "VoiceStream is still early in its life cycle," he said.
The upshot of the deal could be the creation of the first truly global wireless company, where customers can take their phones anywhere in the world and not have to pay roaming fees, he said. He said that in time the company could launch the first global one-rate wireless plan. "That will have an appeal to a very high-end mobile customer," he said.
VoiceStream management waived its right to immediately vest its stock options, as typically happens at the time of a merger, meaning top executives will remain, Poole said. Poole has a buy rating on VoiceStream, and his firm has not acted as an underwriter for the company.