VoiceStream Wireless on Sunday agreed to a $50.7 billion cash-and-stock takeover by Deutsche Telekom AG in a move that will give the money-losing wireless firm a cash infusion to buy new telephone licenses.
The deal also will provide the German company with a foothold in the United States.
VoiceStream, one of the last independent U.S. wireless companies, has licenses across the United States and uses a technology similar to the GSM European mobile standard. Founded in 1994, VoiceStream has 3 million subscribers and 8,200 employees.
The deal is expected to face intense scrutiny in Congress, where many legislators have expressed concern about the 59 percent stake the German government holds in Deutsche Telekom. Under the terms announced early Monday, Deutsche Telekom said the German government's ownership would shrink to 45 percent.
Deutsche Telekom will pay 3.2 shares of its stock, plus $30 cash, for each VoiceStream share. Deutsche Telekom also will assume $5 billion in VoiceStream debt, the companies said.
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Under the complicated two-step deal, which was widely expected, Deutsche Telekom will make a separate $5 billion cash investment in VoiceStream. The German company will receive preferred stock convertible into common stock at $160 per share.
"This transaction is a unique opportunity to enter the U.S. wireless communications market, one of the most attractive in the world," said Ron Sommer, Deutsche Telekom's chairman and CEO. "American consumers will see an acceleration in the rollout of state-of-the-art GSM technology."
Deutsche Telekom has made no secret of its desire to enter the United States--the world's largest telecommunications market. While the company has a war chest of 100 billion euros ($92 billion) to finance its assault, it may be thwarted in its expansion drive by U.S. regulators.
Federal Communications Commission Chairman William Kennard said on Thursday that his agency would "carefully scrutinize" any proposed acquisition of a U.S. telecommunications firm by a government-controlled foreign phone company.
A U.S. law prohibits the acquisition of a U.S. telephone company by any firm that is more than 25 percent owned by a foreign government. But the law gives regulators discretion to waive that limitation if a deal is deemed to be in the public interest.
Industry sources said Deutsche Telekom also has been in talks to acquire Qwest Communications International, the No. 4 U.S. long-distance telephone company.
It has given up hope, however, of acquiring Sprint, the No. 3 U.S. long-distance company, due to fears of regulatory resistance, sources said.
Deutsche Telekom and VoiceStream noted that beyond regulatory approval, the deal must be cleared by shareholders. Owners of more than 50 percent of VoiceStream's stock have agreed to vote in favor of the transaction, the companies said.
Upon completion, VoiceStream shareholders will own about 22 percent of Deutsche Telekom. VoiceStream holders will receive in aggregate of about 829 million Deutsche Telekom shares and about $7.8 billion in cash, the companies said.
Shares of VoiceStream have soared about 22 percent since news of the Deutsche Telekom talks emerged earlier this month. On Friday, the stock fell $3 to $150 on Nasdaq amid concerns a deal may take up to 10 months to close, traders said.
Deutsche Telekom's American Depositary Receipts fell $1 to $51.44 on the New York Stock Exchange on concerns it would overpay for VoiceStream.
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