Two weeks ago, Deutsche Telekom (DT) Chief Technology Officer Olivier Baujard accidentally spoke truth about T-Mobile to an audience of German investment analysts. After running through the usual company talking points about the effort to sell T-Mobile to AT&T (e.g., it will happen, DoJ is just playing hardball with negotiations, etc.), Baujard said at a public presentation at a Paris broadband conference that: “any rational company had a Plan B and that Deutsche Telekom had other opportunities for its U.S. operations should the U.S. Department of Justice succeed in terminating the deal.”
This is vitally important because, after accidentally shooting the “this is the only way to bring 4G to rural America” argument in the foot by accidentally leaking documents proving AT&T could bring 4G to rural America whenever it wants, and T-Mobile killed the ‘this will create jobs’ argument by confirming that it was preparing pink slips for more than 20,000 employees after the acquisition gets approved, the “T-Mobile is a sickly gazelle” argument is about all AT&T and it supporters have left. Unfortunately for AT&T, this is not the first time Deutsche Telekom has screwed up the “sickly gazelle” storyline by revealing inconvenient truths about its other options. And while there is usually a rule in Washington that “we totally ignore what you say to investors when it contradicts your chosen story,” this deal is sufficiently high profile and has sufficient problems that eventually someone may notice if AT&T’s “Sickly Gazelle Chorus” keeps getting thrown off key by Deutsche Telekom’s “We Have Lots of Other Options Counterpoint.”
More below . . . .
Bad enough DT CTO Olivier Baujard went and spilled the beans that DT is a rational company and actually has a “Plan B” in the event the AT&T acquisition does not go through. Baujard then went on to flatly contradict everything that AT&T, DT, and its chorus of earnest fans keep saying so ardently about how DT has “no other opportunities” to exit the market and so will abandon T-Mobile to a fate apparently worse than death and dismemberment at the hands of AT&T:
“It’s not as if we have no other opportunity than to close T-Mobile USA if the deal doesn’t work. We have other opportunities. (T-Mobile USA ) may not be an economical jewel, but it is a true asset that has many ways to be valued,” Baujard said. (Emphasis added.)
This truth was so terrible and potentially damaging that it prompted an immediate retraction from DT, apparently on the theory that it is better to look like an irrational company with no plan than to admit that T-Mobile is a valuable company with a lot of options about the future. Mind you, because of laws that make it illegal to outright lie to investors, DT could not simply say Mr. Baujard was lying or mistaken. Instead, they stated that Mr. Baujard “is not involved in the decisionmaking process” and generally “unfamiliar” with the details of the future of T-Mobile and that DT still believes AT&T acquiring T-Mo is the “best” outcome. But DT did not (and, indeed, could not) say Mr. Baujard was wrong and that DT does not have other options in mind for T-Mobile.
In other words, DT’s “denial” of Baujard’s statement that the company has other options and the T-Mobile has a strong future even without AT&T acquiring it translates as follows: “Please ignore everything our silly CTO said. He is an engineer and lies poorly. Keep believing that T-Mobile is a sickly gazelle that the mighty AT&T lion must devour as part of a pagan ritual to bring jobs and prosperity back to the world. All part of circle of life. Hakuna mattata. These aren’t the droids you’re looking for.”
T-Mobile Has Five Possible Buyers Once AT&T Is Forced To Drop It’s Bid For T-Mo.
Mind you, this is not the first time DT has spoken some inconvenient truth about the real value of T-Mobile and how DT could, with relatively little effort, find another buyer or otherwise exit from the U.S. market. Back in September, when AT&T intimated that maybe it wouldn’t pay DT the promised $6 billion cash-and-spectrum break up fee, DT made it clear that AT&T damn well would because DT had forfeited numerous profitable opportunities by going to the big dance with AT&T instead of all the other boys asking out Ms. T-Mo. As reported by Fierce Wireless Europe:
DT CFO Timotheus Hoettges confirmed that it had discussed the sale of T-Mobile USA with five companies prior to the AT&T deal. One of those companies was reportedly Sprint Netxel. (Emphasis added.)
Who are these jilted suitors? Supporters of the AT&T takeover are fond of asking, in a rather plaintive voice, “who will buy T-Mobile if not AT&T? After all, DT has declared T-Mobile a sickly gazelle that will be left to waste away in agony unless the mighty AT&T lion devours it in a mercy killing.” This is usually followed with some disparaging remarks about Sprint, the presumed other suitor waiting in the wings. For some reason, this argument justifies the confimed layoffs of upward of 20,000 T-Mobile employees immediately as a means of saving jobs in the long run when T-Mo ultimately whithers away.
As it turns out however, AT&T takeover supporters (and those listening to them) need not fear. DT knows exactly who its previous suitors were. And unless I have lost track of how to count, only one of the five companies with which DT discussed “the sale of T-Mobile” other than AT&T can be Sprint. Using advanced mathematical modelling techniques, we can determine that this leaves four companies (5-1=4) that aren’t Sprint as possible buyers for T-Mo when DoJ wins its antitrust case.
If DT Can’t Find A Buyer for T-Mo, Analysts Agree A Spin Off As A Stand Alone Could Raise $28 Billion.
As if this weren’t bad enough news for AT&T’s storyline that T-Mo is a sickly gazelle so repulsive no other company would stoop to acquire it, financial analysts agree that DT can spin off T-Mo to investors who don’t share DT’s aversion to the American mobile market for a fairly hefty sum. As the same article noted:
Also, Heinrich Ey, a fund manager at Allianz Global Investors in Frankfurt, told Bloomberg that an IPO of T-Mobile USA could raise as much as €20 billion, or $28 billion, albeit far removed from the $39 billion that AT&T offered.
All of this inconvenient truth leaking out of DT like sieve raises some interesting questions here at home.
Inconvenient Truths From DT Raise Inconvenient Questions For AT&T.
First question: When will someone in the U.S. notice? It’s not like these statements are coming out of some secret document horde, like when AT&T accidentally acknowledged that they did not need T-Mo to bring 4G wireless broadband to rural America. DT officers are making these statements publicly. Sure, there is generally an “honor among thieves” agreement among Washington policymakers and companies to ignore when companies say one thing in Washington and say the exact opposite to financial analysts. But at this point, financial analysts do not expect the AT&T/T-Mobile deal to go through, and would probably like to see DT get on with its life before T-Mo loses more customers propping up the “Sickly Gazelle” storyline. Eventually, analysts are going to start pressing DT to renegotiate its break up agreement and get permission to auction the company to someone else. The question is whether AT&T and its chorus of supporters still sing the “T-Mo Is A Sickly Gazelle and only AT&T can put it out of its misery” song unchallenged until that point, or whether DT says something so damaging so public that folks in DC finally take notice.
Second question: why is AT&T willing to pay $11 billion more than the IPO value of T-Mobile? After all, an estimated IPO value is what one assumes the fair market value of the company to be. If the IPO value is estimated at $28 billion, AT&T is willing to pay an $11 billion premium for — what? Don’t tell me “spectrum.” AT&T could acquire needed spectrum access rights far more cheaply through commercial roaming agreements. And, as already noted, AT&T previously conceded they could bring 4G to rural America much cheaper without acquiring T-Mo. Where do you get $11 billion worth of “efficiencies” without firing boatloads of people and using your new-found market power to exact monopoly rents?
I do not expect that AT&T or its chorus of supporters will change their tune, especially since it is pretty much the only song left in their hymnal. Indeed, history shows they will simply sing “The Sickly Gazelle Chorus” louder, in the hopes of drowning out the inconvenient truth. But the Inconvenient Truth Carol coming out of DT is starting to become a rather penetrating counterpoint. Eventually, someone is going to notice that DT and AT&T are no longer singing in harmony.
Stay tuned . . . .