Deutsche Telekom and T-Mobile in early talks for mega merger, sources say

By Hakan Ersen, Elvira Pollina and Supantha Mukherjee

BERLIN/MILAN/STOCKHOLM, April 22 (Reuters) – Deutsche Telekom is exploring a deal to combine with T-Mobile US and create a transatlantic telecoms giant in what would be the largest ever public merger, two people familiar with the matter said.

The German group’s shares fell about 5% ‌on Wednesday after news of the talks, first reported by Bloomberg. Telekom already owns a 53% stake in T-Mobile. T-Mobile shares were trading down by around ‌3.5% on Wednesday afternoon.

The merger talks, long mooted and still at an early stage, could create a company with a market capitalisation of nearly $300 billion, making it the world’s most valuable telecoms group with more than 200 million mobile subscribers.

That scale could bolster financial firepower and support further acquisitions, Morgan Stanley analysts said.

“The real appeal is gaining the benefits of control while still preserving the agility and valuation upside of T-Mobile as a standalone business,” said PP Foresight analyst Paolo Pescatore, adding that T-Mobile has increasingly become the “engine” of Deutsche Telekom.

Deutsche Telekom’s ownership of T-Mobile dates back 25 years and has fluctuated over time. Since 2020, the German group has moved to tighten its grip. CEO Timotheus Hoettges is chairman of T-Mobile’s board.

REGULATORS LIKELY TO SCRUTINISE ANY DEAL

The complex potential deal is ‌aimed at reigniting growth in a stagnating telecoms sector, though ⁠it could face major regulatory and geopolitical hurdles. It comes amid strained diplomatic and economic ties between Germany and the U.S., clouded by tariffs and tensions over the war in Iran.

Any deal would require support from the German state, Deutsche Telekom’s single biggest shareholder, with a 28% ⁠stake held roughly equally by the government and state-lender KfW, whose holding could be diluted in a merged group.

“A full merger would see this diluted to 17%-18% at current valuations, below the ~25% threshold which German authorities have signalled would be a threshold for ‘strategic businesses’ in the past,” said BNP Paribas Equity Research senior analyst Sam McHugh.

Blair Levin, policy adviser at New Street Research, said a deal would likely face heavy scrutiny in the U.S., but was unlikely to be blocked on purely regulatory grounds, even if it triggered political resistance.

“The bottom line is that while there ‌will be antitrust, national security, and regulatory investigations, those investigations are unlikely to find a problem that results in the U.S. government blocking the deal,” he said.

The fact that Deutsche Telekom already holds a majority share likely alleviates any antitrust concern, said William Kovacic, director of the Competition Law Center at George Washington University.

But regulatory reviews give Trump’s gatekeepers including U.S. Federal Communications Commission Chairman Brendan Carr a chance to seek unrelated concessions, Kovacic said.

Last year, the FCC approved two T-Mobile deals that would expand the wireless carrier’s network after the company ended its diversity, equity and inclusion programs.

Deutsche Telekom and T-Mobile declined to comment. The German government did not immediately respond to a request for comment.

Burdened by billions of euros ‌of debt, European telecom companies operate in fragmented, highly competitive markets and have been seeking new avenues for growth. The talks also come as dealmaking has begun to recover following the Iran conflict.

COULD BE BIGGEST PUBLIC MERGER ON RECORD

Deutsche Bank analysts said a transatlantic group could find it easier to tap capital markets to pursue cross-border deals in Europe and the U.S.

A deal also makes strategic sense for Deutsche Telekom as ‌T-Mobile has become an increasingly important driver of group performance given the stronger growth profile of the U.S. market compared with Europe, analysts said.

Under the proposal, a new holding company would make an all-share offer for both firms, be owned by existing shareholders and list in both the U.S. and Europe, Bloomberg said.

Such a transaction would surpass the $202.7 billion Vodafone-Mannesmann merger announced in 1999 – currently the biggest deal on record, according to LSEG data. Deutsche Telekom has a market value of about $166 billion, while T-Mobile ‌is valued at about $218 billion.

T-Mobile’s stock has lost a quarter of its value in the last year, while Deutsche Telekom shares are down about 10%.

(Reporting by Thomas Seythal and Hakan Ersen in Berlin, Supantha Mukherjee in Stockholm, Elvira Pollina in Milan, Harshita Mary Varghese in Bengaluru, Jody Godoy in New York and David Shepardson in Washington. Editing by Adam Jourdan, Anousha Sakoui and Mark Potter)