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Deutsche Telekom AG’s $29 billion acquisition of VoiceStream Wireless Corp. and Powertel Inc., which was completed May 31, exhibited all the complexity attendant to a multibillion dollar, cross-border deal involving new technology. Ultimately, though, it was the resolve of executives at both companies to ignore their falling stock prices and the occasional complaints of shareholders that provided the impetus to close the transaction. Under the original terms of the July 24 agreement, VoiceStream had the right to walk away from the transaction without paying a break-up fee had shares in the German telecommunications giant fallen below �33 ($27.88) a share during a 15-day period before the deal’s closing. Certainly, that provision could have been invoked. Deutsche Telekom’s stock price, which was at �48.70 at the time the agreement was signed, closed Thursday at �24.18. But neither side opted out. VoiceStream, for one, is keenly aware it needs the backing of a wealthy investor to compete against its much bigger and, in most cases, better known competitors: Verizon Wireless, Cingular Wireless, AT&T Wireless, Sprint Corp. and Nextel Communications Inc. And Deutsche Telekom remained far too determined to enter the U.S. telecommunications to think twice about encouraging VoiceStream to exit. The 11-month process was plagued by regulatory controversies, political fingerpointing, and the worries of both sets of shareholders uncertain that the deal should be completed. As a backdrop, the deal itself was caught in the middle of industry problems, as VoiceStream also fell from $149.75 a share shortly before the deal was closed to $89.30 a share Thursday. By acquiring Bellevue, Wash.-based VoiceStream and the regional wireless provider Powertel, of West Point, Ga., Ron Sommer, chairman of the German telecom giant, succeeded in expanding into the United States, one of his chief goals even as he spent billions on third-generation wireless licenses for Europe. Deutsche Telekom can now extend the use of the European wireless standard GSM, or Global System for Mobile communications, to the U.S. GSM is the most widely used wireless system in Europe, but outside of VoiceStream and Powertel, it is rarely deployed in the U.S. To enter the U.S. market, Deutsche Telekom’s shareholders ended up paying $4.23 billion in cash to former VoiceStream and PowerTel shareholders, and having to issue 1.17 billion new shares. Under a final structure reached Wednesday, Deutsche Telekom is offering VoiceStream shareholders 3.7 of its shares plus $15.73 in cash for each share of VoiceStream. That’s a slight change from the original offer, which would have paid VoiceStream shareholders 3.2 DT shares and $30 in cash. Either way, the total value of the transaction was cut nearly in half from roughly $50.7 billion at the time deal was announced to about $29 billion at the close of trading Thursday. At times, financial considerations were secondary to regulatory and political concerns. For months, Sen. Ernest Hollings, D-S.C., attempted to derail the deal by introducing legislation that would have prevented a foreign government from owning more than 25 percent of a U.S. telecommunications company; when the deal was announced, the German government owned more than 50 percent of Deutsche Telekom, though the U.S. Federal Communications Commission said its stake would be about 45 percent at the close of the deal. Though Hollings’ bill never reached the Senate floor, the deal also had to win approval from the Committee on Foreign Investment in the United States. Known as CFIUS, the committee eventually approved the transaction. In Europe, Deutsche Telekom must still confront the lack of a presence in key European markets such as France, Italy and Spain. A year ago, when DT signed the VoiceStream agreement, it had over $100 billion in cash on hand. However, a steep and prolonged slump in the German company’s share price, which has coincided with a general fall in European telecom valuations, effectively destroyed DT’s capacity to do further deals. On top of that, DT’s debt ballooned to roughly �57 billion ($49 billion), largely the result of buying expensive third-generation mobile phone licenses in Germany and Britain. DT’s absence in France, Italy and Spain means that its European network is significantly less extensive than that of its rivals, Vodafone Group PLC and France’s Orange SA. Vodafone is the largest and most widely spread mobile phone company in the world while Orange has extensive operations in France, Italy and the U.K and a somewhat smaller network Germany. As a result of such concerns, DT has said that while its chief focus will now be on building its new U.S. businesses, it will continue to monitor the European scene for possible deals. Analysts say the company has made an unofficial pledge to investors to fill in the gaps in its European network within the next two to three years. Across the Atlantic, DT enters the U.S. wireless market in seventh place. With a combined 5.4 million subscribers between VoiceStream and Powertel, DT’s new U.S. carrier is dwarfed by industry leader Verizon Wireless (27.1 million), Cingular (20.53 million) and to the well-known brand, AT&T Wireless (15.74 million). Copyright (c)2001 TDD, LLC. All rights reserved.

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