Deutsche Telekom, which owns 66 percent of the fourth-largest U.S.
carrier, has doubts that Iliad will be able to improve the U.S.
business since the French startup has no track record in the
country, a source close to the German company's management said.
Under the deal structure proposed by Iliad, Deutsche Telekom would
have to keep a stake in the combined company.
Iliad is currently in talks with several U.S. banks to help it
finance a possible improved bid for T-Mobile US alongside existing
lenders HSBC and BNP Paribas, the people familiar with the situation
said, after a $33 per share offer for 56.6 percent of T-Mobile US
was rejected by Deutsche Telekom.
Chief Financial Officer Thomas Reynaud said Iliad's key leverage
ratio would not surpass 4.5 times net debt to earnings before
interest, tax, depreciation and amortization (EBITDA). He also said
that Iliad would limit any capital increase to fund the T-Mobile bid
to 2 billion euros ($2.57 billion).
Iliad is also seeking to team up with private equity funds including
KKR to raise about $5-6.5 billion, the sources, who could not be
named because the talks are private, said.
T-Mobile US, Iliad and KKR declined to comment. Deutsche Telekom
could not be reached immediately for comment.
Iliad's management team has now finished road shows to meet U.S.
investors and is waiting to hear back from potential investors, the
Depending on how positive the feedback is from private equity
investors, the French firm could be able to table an improved bid in
the second week of October, two of the sources said.
Iliad could offer between $35 and $40 per share for a stake in
T-Mobile of between 60 percent and 90 percent, depending on the
appetite of private equity funds and lenders for the deal, two other
But Iliad, whose shares have fallen around 25 percent since it
embarked on a bid for T-Mobile in late July, cannot afford a lengthy
pursuit of T-Mobile if Deutsche Telekom is not willing to engage.
In a note this week after it hosted a dinner with T-Mobile US's
investor relations team, brokerage firm Jefferies said criteria for
potential partners included a spectrum line in the United States and
a U.S. customers base, on top of favorable financial terms.
Such a constraint would rule out Iliad as an acquirer, although this
could also be part of Deutsche Telekom's tactics to get a better
deal from Iliad, said some of the sources who are close to Iliad.
[to top of second column]
Deutsche Telekom would still prefer to exit the U.S market but is
under no pressure to sell T-Mobile US at the moment or to start
negotiations with Iliad, said the source close the German company's
management, who did not rule out that Deutsche Telekom might still
be active in the United States in two to three years.
Deutsche Telekom expressed scepticism last month about estimates by
Iliad's boss Xavier Niel that the merger would result in $10 billion
in benefits from cost cuts.
That pledge has also been met with scepticism by some analysts who
say T-Mobile is already run in quite a lean manner.
Earlier this month, Iliad's Reynaud said the French group had not
yet won access to a so-called "data room", which is usually set up
to give bidders access to information that is not public about a
company it wants to buy.
Even without access to detailed information on T-Mobile, Iliad
believes it can generate $2 billion in savings per year, or 7
percent of T-Mobile's estimated cost base, by running the operator
in a more cost efficient way.
Deutsche Telekom, which makes about a third of its sales and a fifth
of core profits in the United States, has tried to sell T-Mobile
twice since late 2011 because it sees it as too small to compete
with market leaders Verizon Communications Inc and AT&T.
The German company spent about a year negotiating with Sprint Corp.,
the third-place U.S. mobile carrier, over a potential sale, only to
see it withdraw in early August over worries U.S. regulators would
bar the deal on competition grounds.
(Additional reporting by Pamela Barbaglia, Freya Berry in London,
Leila Abboud in Paris and Harro Ten Wolde in Frankfurt and Liana
Baker and Marina Lopes in New York)
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