Deutsche Telekom Could Sell T-Mobile Stock after Lockup

NEW YORK (TheStreet) -- Deutsche Telekom could begin selling down its controlling stake in T-Mobile (TMUS) after the German conglomerate was unable to orchestrate a merger of its U.S. wireless arm with Sprint (S), Bernstein Research analysts said.

In October, an 18-month lockup period that precluded Deutsche Telekom from selling its T-Mobile shares expires, giving the company an ability to begin paring its position in the U.S. wireless carrier through ordinary stock sales. Alternatively, the lockup expiry could also pressure interested T-Mobile buyers to begin negotiating a deal.

With Sprint out of the mix, analysts now see DISH Network (DISH) as a credible buyer of T-Mobile. DISH Network has shown some signs of interest after the satellite TV provider narrowly lost out to SoftBank on the sweepstakes for Sprint. Meanwhile, T-Mobile recently rejected an un-solicited and un-financed cash offer for 56% of the company by French telecom Iliad.

If speculation of consolidation has driven the discussion of telecom stocks in 2014, especially with regard to Sprint and T-Mobile, Deutsche Telekom’s looming lockup expiry may be an under-appreciated back story.

When Sprint formally announced it was abandoning efforts at an offer for T-Mobile the news sent CEO John Legere into a frenzy on Twitter. It also caused analysts at Bernstein to raise the prospect Deutsche Telekom may simply sell down its T-Mobile stake, after years of regulatory setbacks in consolidation efforts.

"Deutsche Telekom (DT) still has several exit options, the best strategically being DISH -- would bring a material amount of spectrum, a customer base, the potential for video bundling, and experience in the U.S. market -- unlike international buyers (e.g., Iliad) who bring nothing except cash and likely overly optimistic assessments of the transferability of their capabilities," Bernstein Research said.

"Further, DT's lockup period expires at the end of October, presenting it with the option of realizing some gains by selling down its stake even if no transaction is underway by then," a team of analysts led by Paul de Sa also noted.

Deutsche Telekom declined to comment on whether it would consider selling some of its T-Mobile stake starting in October.

"We’re open to a transaction that creates value for all T-Mobile US shareholders, compared with continuing the business on its own. Right now, there’s no such offer on the table," Deutsche Telekom CEO Tim Hottges said on a conference call with analysts last week.

During the 18-month lockup, Deutsche Telekom was allowed to sell its shares if a majority of T-Mobile’s unaffiliated board members approved such a maneuver.

Moody’s rating analysts said in an Aug. 12 note that a DISH offer for T-Mobile would have to come entirely in stock if the company were to hold onto its Ba3 bond rating. A stock deal, while it may please some of T-Mobile’s public shareholders, would do little to help Deutsche Telekom exit its long standing investment in the wireless carrier, Moody’s noted.

T-Mobile investors and customers may have better clarity on the telecom’s future by October, as Deutsche Telekom gains the ability to sell its stock on the open market.

-- Written by Antoine Gara in New York

Follow @AntoineGara

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