Speculation Swirls on Deutsche Telekom's Next Courtship

Flush with cash, the telecom giant will look beyond Qwest-U S West for a partner to further its global ambition.
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BERLIN --

Deutsche Telekom

(DT) - Get Report

Chairman Ron Sommer is looking for a soul mate. And in the rough-and-tumble world of international telecommunications, Deutsche Telekom sorely needs a partner to become a global player. Unfortunately, Sommer's penchant for looking for love in all the wrong places continues to get in the way.

Only last year, Telekom's failed merger with

Telecom Italia

(TI)

left Sommer humiliated after destroying what remained of Deutsche Telekom's alliance with

France Telecom

(FTE)

and

Sprint

(FON)

. But if the reports of the past weeks are true, Sommer apparently went ahead and got himself involved in another messy merger bid by meddling in the

Qwest

(Q)

-

U S West

(USW)

linkup.

The good news this time around is instead of repeating the embarrassment of having another Telecom Italia stolen right out from under him, Sommer was smart enough to break off the talks with Qwest after U S West made a big enough stink. The episode also has hopefully given Deutsche Telekom's executives enough time to reflect exactly where they should be focusing their acquisitiveness instead of just making a grab for the next best thing.

Despite the apparent initial setback for Deutsche Telekom's global ambitions, the telco remains very much in the hunt. With potential partners such as

Global Crossing

(GBLX)

and

Cable & Wireless

(CWP)

still available, and a war chest chock-full of cash, Sommer has more than enough opportunities to buy his way into the big leagues and free himself from the memories of failed deals past.

The former state-run monopoly certainly has enough for a proper dowry: Besides the oodles of cash on hand, the company's near $300 billion market cap puts few deals out of its reach. (On Tuesday, Deutsche Telekom shares tumbled 4.15 euros, or 4.5%, to 88.10 euros($84.93).)

The biggest problem would appear to be Sommer's tendency to seek out potential partners more with his heart than his head, as demonstrated by the nasty row that erupted between Qwest and U S West. Faced with the prospect of paying too much for U S West, which never had much allure for Deutsche Telekom in the first place, Sommer backed off. But he still has the pressure for a megadeal with an international partner weighing upon him.

After the likelihood of an imminent takeover of Qwest subsided, speculation immediately turned to Bermuda-based Global Crossing. "Global Crossing could be a more interesting candidate than Qwest," says Andrew Haskins, an analyst for

HSBC

in London. The company has "extensive fiber-optic routes in the U.S., but it

also owns what is perhaps a better-developed international network, with fiber-optic connections to Europe, Latin America and the Far East." HSBC rates Deutsche Telekom a hold and has an investment banking relationship with the company.

Also, the prospect of a Deutsche Telekom bid for Cable & Wireless appears more possible now that the U.K. company has shed its assets in Hong Kong. The names of Dutch communications firm

Equant

(ENT) - Get Report

and U.S. telco

SBC Communications

(SBC)

are now also being thrown about as possible targets for Deutsche Telekom.

Regardless of which one Deutsche Telekom might choose to buy, no solution will be a one-stop shopping trip. According to a report by

Bernstein Research

, a purchase of Global Crossing, Cable & Wireless or even Qwest would mean "further fill-in acquisitions would be needed

to enable Deutsche Telekom to knit together a comprehensive U.S. presence."

If that's the case, Deutsche Telekom may be better served by taking its time and assembling the necessary elements for its global expansion, including access to the key U.S. market, in an affordable fashion. Unfortunately, the allure of a blockbuster merger may be too much for the lonely Mr. Sommer to resist.