Activist hedge fund Elliott Management has built a significant position in Deutsche Telekom and is urging the German telecoms group to abandon potential plans to combine with its US subsidiary T-Mobile US, according to a report by the Financial Times.
The report cites unnamed people familiar with the matter as saying that instead, Elliott wants Deutsche Telekom to concentrate on measures it believes could deliver more immediate value for shareholders, including share buybacks.
The size of Elliott’s holding could not immediately be established. Its involvement nevertheless adds another potential obstacle to a transaction that was already facing considerable uncertainty.
Deutsche Telekom owns 53% of T-Mobile US and has been examining the possibility of a full combination of the two businesses. Such a transaction would rank among the largest public-market deals ever proposed.
Investor concerns have already emerged around the strategic rationale for bringing the companies together. Some minority shareholders in T-Mobile US are understood to be wary of increasing their exposure to European markets, where telecom companies generally command lower valuations than their US counterparts.
T-Mobile executives are also concerned about a possible shareholder backlash, according to previous reports.
Any attempt to complete a merger would face significant regulatory, political and labour hurdles on both sides of the Atlantic. Deutsche Telekom would need to secure the support of influential German trade unions as well as political stakeholders in Germany and the US.
The German government owns around 14% of Deutsche Telekom, while a further 14% is held by state-backed development bank KfW, giving Berlin substantial influence over any major strategic transaction.
