T-Mobile was currently the fourth-largest telecom operator in the United States, ahead of AT&T, Verizon, and Sprint.
O2 Telecom hoped to enter the North American market by acquiring T-Mobile USA. After all, the market was enormous, while T-Mobile only ranked fourth, indicating significant growth potential.
Deutsche Telekom was also interested in selling T-Mobile, which provided the basis for negotiations between the two parties.
The reason for this was primarily due to T-Mobile's poor performance in the North American market.
Deutsche Telekom, known as the "German Tank," entered the American market in 2001 through the acquisitions of VoiceStream Wireless and Powertel. At the time, the American telecom market was experiencing rapid growth, presenting numerous opportunities for Deutsche Telekom.
However, this market was also highly competitive.
In 1996, the FCC, the US telecom regulator, deregulated the market, creating a relaxed competitive environment. Competitors of all sizes emerged rapidly, creating a fierce competition.
Furthermore, with the recent rise of emerging players like Apple and Android, US telecom operators have been particularly impacted. Foreign operators like Deutsche Telekom, attempting to capitalize on the US market, have faced dismal performance.
AT&T, thanks to its early investment in Apple, secured exclusive sales rights for the iPhone in North America.
While the Honor Mate's sales are comparable to those of the iPhone, T-Mobile does not hold exclusive sales rights. Honor Electronics' strategy is to secure as many partners as possible.
Therefore, among US telecom operators, T-Mobile has no advantage over Sprint and Verizon. Instead, AT&T, with its exclusive iPhone sales rights, has captured market share.
Statistics show that T-Mobile accounts for a quarter of Deutsche Telekom's sales revenue, but it has struggled to catch up with competitors in 3G, leading to accelerated subscriber losses.
T-Mobile America has experienced profit declines in four of the past five years, with approximately 56,000 subscribers switching from T-Mobile to other carriers in 2007.
Meanwhile, AT&T, Sprint, and Verizon have all seen increases in subscribers.
Under these circumstances, selling T-Mobile became a last resort for Deutsche Telekom.
Furthermore, the subprime mortgage crisis, which had already impacted the telecommunications industry and made bank financing more difficult to obtain, was already deteriorating operating conditions.
Deutsche Telekom's willingness to sell T-Mobile stemmed from a desire to bolster its cash reserves and temporarily abandon the highly competitive North American market to focus on Europe and emerging markets in Asia and Africa.
Currently, the only disagreement between O2 and Deutsche Telekom was over the acquisition price.
At its peak, T-Mobile USA's market capitalization approached $40 billion. However, due to declining performance and the impact of the subprime mortgage crisis, its stock price has fallen over 35% from its peak last year, to a market capitalization of less than $26 billion.
"I believe that selling T-Mobile's US business will help your company focus on more growth-oriented markets. The mobile internet is still in its early stages, and making the right choice is crucial."
After hearing Barron's words, even though this was indeed their idea, Deutsche Telekom CEO Lenny Obermann asked,
"Then why did you choose to enter the North American market, Your Highness?"
"Because O2 Telecom's involvement in the market is not large at the moment, and entering the North American market through acquisition is a good approach. Although the competition there is fierce, I still want to give it a try..."
Barron smiled and said,
"Of course, T-Mobile is one of our options, but it's not the only one." Deutsche Telekom currently operates in approximately 50 countries worldwide, primarily in Western and Central Europe, while its subsidiary, T-Mobile, operates in North America and Northern Europe. O2 Telecom is considering acquiring T-Mobile USA, its North American branch.
Compared to Deutsche Telekom, O2 Telecom is significantly smaller, currently operating only in Western and Eastern Europe. Baron's comments, in Lenny Obermann's view, smack of youthful bravado.
This is understandable, considering Baron is not yet 30, yet he has already achieved remarkable success and owns a vast business. It's only natural for him to be confident, even arrogant, in such circumstances.
However, Baron also points out that T-Mobile isn't O2 Telecom's only option.
Besides T-Mobile, O2 Telecom could also consider acquisition options for Sprint or Virgin America.
For example, Sprint currently has a slightly larger scale and market share than T-Mobile, ranking as the third-largest telecom operator in the United States.
In Baron's previous life, after achieving success with the acquisition of Vodafone Japan, future Sun Zhengyi chose to enter the American market by acquiring Sprint, hoping to replicate his success in the Japanese telecommunications industry.
However, the Sprint acquisition didn't yield satisfactory results for Sun Zhengyi...
but for now, acquiring Sprint remains a viable option for O2 Telecom.
Setting that aside, for now, T-Mobile remains O2 Telecom's top target.
What impressed Deutsche Telekom was O2's willingness to pay a premium and acquire T-Mobile in an all-cash deal. After the news of O2's acquisition of T-Mobile broke, other companies were interested, including AT&T and Sprint, which had approached Deutsche Telekom.
However, Deutsche Telekom still lists O2 as the primary buyer for its T-Mobile subsidiary.
This is because, while O2's offer wasn't the highest, it was willing to pay in cash.
AT&T and Sprint's acquisition proposals are primarily stock-based, and since both are leading telecom operators in the United States, their acquisitions of T-Mobile would inevitably trigger regulatory investigations, which would prolong the acquisition process.
O2 Telecom, on the other hand, has no prior presence in the American market, so its acquisition of T-Mobile USA wouldn't involve antitrust violations, making it easier for regulators to approve.
Negotiations are still ongoing because the two parties haven't yet reached an agreement on a price.
O2 Telecom will form a consortium with Caesars Capital to acquire T-Mobile, with support from Standard Chartered Merrill Lynch. These M&A projects are highly sought after by investment banks, who often earn healthy returns through their advisory and financing services.
For Baron, this is a natural win-win, especially since Standard Chartered Merrill Lynch, now a subsidiary of Merrill Lynch, has extensive experience in this area.
O2 Telecom's offer for T-Mobile was $27.5 billion. While this price represented a modest premium to T-Mobile's current market capitalization, it was still competitive given the current market conditions and the all-cash nature of the acquisition. However
, Deutsche Telekom was not satisfied with this offer and hoped to sell T-Mobile for $30 billion. This would provide them with sufficient liquidity and, while the stock price was currently low, allow them to implement a share repurchase program to boost investor confidence.
Negotiations continued between the two parties, with the bid and the asking price remaining.