DT RESTRUCTURES VOICESTREAM-POWERTEL MERGER PROPOSAL
Deutsche Telekom (DT) disputed reports that timeline of proposed mergers with Powertel and VoiceStream had slipped. Spokesman in Germany said company didn’t set midyear closing target until it filed proxy statement with SEC Fri. Filing said wireless merger wasn’t expected to close until “at least” May 31. Some analysts had expected wireless transaction to close in April or even earlier after remaining regulatory hurdles were cleared, including FCC approval. Germany’s DT made offer somewhat sweeter with new provision that would increase shares VoiceStream stockholders would own by 0.75%, raising number of shares that would be exchanged for DT stock.
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Before $34-billion deal closes, VoiceStream expects to declare stock dividend of .0075 of common share for each share outstanding. Dividend will increase by 0.75% number of shares owned by VoiceStream holders. That will increase aggregate amount of cash and DT shares that VoiceStream shareholders will receive in merger, DT spokesman said. SEC filing said DT would pay $5.4 billion in cash and issue 880.7 million shares to VoiceStream shareholders based on exchange rate as of Feb. 7. That means VoiceStream shareholders would own 22% of DT after merger closed, filing said. If DT needs to make tax-related adjustment, that could increase cash part of deal to $7.6 billion and reduce shares offered to 808.9 million. DT also expects to assume $5 billion of long-term VoiceStream debt and additional $1.2 billion of Powertel debt.
“We agreed on this to make the deal more clear to the shareholders of VoiceStream to get a share dividend and not a cash dividend from Deutsche Telekom,” DT spokesman said. If VoiceStream merger closed before annual DT shareholder meeting in May, VoiceStream shareholders would have been due same cash dividend as DT stockowners. Under transaction, VoiceStream shareholders wouldn’t get dividend from DT in 2001. Company continues to expect to receive FCC decision on merger in first half of year, DT spokesman said. Only factor that has changed, spokesman said, is that for first time company has fixed date for merger’s closing. “There’s no delay because we had no timing,” he said.
Powertel merger is expected to close in same time frame as VoiceStream and terms of stock dividend are same for Powertel. Transaction is structured so that if VoiceStream merger with DT falls through, VoiceStream still reserves right to merge with Powertel. VoiceStream and Powertel shareholders will vote on merger proposal at separate meetings March 13. Basic terms of deal are for $30 in cash and 3.2 DT shares for each VoiceStream common share, although stockholders can opt for variations of more or less cash and stock. DT said in proxy that merger review by FCC typically takes at least 6 months from date that Commission releases public notice on proposed transactions. Proxy acknowledged such reviews could take “substantially longer.” Agency released public notice seeking comments on DT proposals in Oct., with final comment period ending Jan. 8. Committee on Foreign Investment in U.S. also must approve deal.
Among risk factors connected to deal that DT laid out in proxy statement at SEC is VoiceStream’s debt level. Other merger- related risks, which customarily are listed in proxy statements, include possible challenges to licenses that VoiceStream won in FCC’s PCS auction last month. Last year, DT had made $5 billion investment in VoiceStream for purposes of spectrum acquisition or related transactions. Today (Feb. 12) is deadline for winning bidders to submit long-form applications for licenses in auction and for challengers to file petitions to deny at FCC. Proxy said VoiceStream believed DT’s “investment fully complies with the FCC’s foreign ownership limitations.” Proxy said adverse FCC ruling could result in denial of application for licenses.
N.Y. Times reported Fri. that VoiceStream and DT had talked informally about renegotiating price in wake of German carrier’s flagging share prices. DT shares fell 4.35% on Frankfurt Stock Exchange Fri. to 31.65 euros ($29.30). When companies unveiled merger plans in July (CD July 25 p1), DT stock was closer to 55 euros. Transaction terms allow VoiceStream shareholders to walk away from merger if DT shares trade at average below 33 euros within certain period before deal closes. VoiceStream shares also fell Fri., dipping nearly 5% on Nasdaq to close at $111.93. But DT spokesman said Fri. only change in transaction terms was “this small minor amendment concerning the dividend -- nothing else.”
Meanwhile, VoiceStream Chmn. John Stanton discussed merger with FCC Chmn. Powell Feb. 7, according to ex parte filing. Stanton urged agency to consider transaction “in a timely manner,” filing said. “He also observed that the lengthy review process puts U.S. companies at a disadvantage vis-a-vis their foreign competitors, who are able to close their strategic transactions more quickly,” filing said.