April 22 (Reuters) - Deutsche Telekom is exploring a deal to combine with its U.S. unit, T-Mobile U.S., to create a US$400 billion 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 3 per cent on Wednesday morning after news of the early-stage talks, first reported by Bloomberg. Telekom already owns a 53 per cent stake in T-Mobile.
The complex potential deal is aimed at reigniting growth in a stagnating telecoms sector, but 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 per cent stake held roughly equally by the government and state-lender KfW, whose holding could be diluted in a merged group.
Deutsche Telekom declined to comment. T-Mobile and the German government did not immediately respond to requests.
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.
A merger would create a company valued at roughly US$400 billion, potentially boosting liquidity and making future dealmaking easier, one of the sources said, speaking on condition of anonymity because the discussions are private.
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 United States.
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 US$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 US$166 billion, while T-Mobile is valued at about US$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 per cent.
Reporting by Thomas Seythal and Hakan Ersen in Berlin, Supantha Mukherjee in Stockholm and Elvira Pollina in Milan. Editing by Adam Jourdan, Louise Heavens and Mark Potter
