Hutchison sells VoiceStream stake to Deutsche Telekom for $ 1.86 bn

Hutchison sells VoiceStream stake to Deutsche Telekom for $ 1.86 bn
Tony Munroe

JULY 24: Hong Kong conglomerate Hutchison Whampoa on Monday said it agreed to sell its 22 per cent stake in US carrier VoiceStream Wireless to Deutsche Telekom for US $10.86 billion in cash and stock, creating a potential profit of more than US $9 billion.

Hutchison said its gain on Deutsche Telekom's US $ 50.7 billion deal to purchase money-losing VoiceStream would be in excess of HK $70 billion, or US $9 billion based on Deutsche Telekom's Friday share closing. The gain would be booked in 2001, when the deal is set to close, Hutchison said.

However, shares in Deutsche Telekom plunged 3.93 per cent to 53.10 euros shortly after the opening of trade on Monday. Shares in Hutchison, which had run up on its recent European third-generation wireless deal-making and in anticipation of the VoiceStream sale, on Monday plunged by 3.64 per cent to HK $119.

Under the terms of the deal Hutchison would receive US $1.6 billion in cash and 179 million Deutsche Telekom shares, making the stock portion worth US $9.26 billion at Friday's close. Analysts have said Hutchison paid US $1.2 billion for its VoiceStream stake, which would put Hutchison's profit at US $9.66 billion based on Deutsche Telekom's Friday close of 55.27 euros (US $51.74).

While the deal provides Hutchison with a quick and healthy profit -- its VoiceStream investments were made in 1998 and 1999 -- some analysts fret that selling its VoiceStream stake leaves the company with a strategic void in the US wireless market -- the world's largest.

"As far as Hutch has done, it's a fabulous deal, no doubt about it," said analyst Anil Daswani of Salomon Smith Barney in Hong Kong. But, he added, "I don't like them being out of the U S wireless business." Analyst Sanjeet Devgan of Prudential Securities said that if Hutchison were to try to re-enter the US wireless market, it would probably be jointly with one of its existing partners, such as Japan's NTT DoCoMo -- and it would not likely be at current market prices.

"If they ever do, it would be a very opportunistic buy. If the valuations don't come down, they'll probably be happy to stay out of it," Devgan said.

Hutchison, which has been extremely profitable in its recent wireless deal making, said it is still committed to the US market. "Hutchison remains interested in and will continue to explore alternatives for participation in the US telecommunications business, in particular in third-generation (3G) wireless opportunities in that market," the company said in a statement.

Hutchison said it would end up with 4.6 per cent of the outstanding shares in Deutsche Telekom -- a stake analysts said they did not expect Hutchison would hold for the long-term.

The cash portion of the deal adds to Hutchison's already substantial war chest. Chairman Li Ka-shing, a Hong Kong property tycoon, said earlier this month that the firm's cash-on-hand totalled HK $100 (US $12.83 billion), which analysts have said will come in handy as the company plans to bid for and build 3G wireless networks across Europe.

Earlier this month Hutchison inked an alliance with NTTDoCoMo and Dutch carrier KPN Telecom to jointly build European wireless networks. As part of that deal Hutchison sold 35 per cent of its 90.1 per cent-owned UK 3G wireless business to its two partners for 2.1 billion pounds. The venture in April paid 4.4 billion pounds for a UK 3G licence.

Hutchison also owns 3.5 per cent of Vodafone AirTouch Plc, the result of Hutchison's sale last year of its 44 per cent stake in UK wireless carrier Orange to Mannesmann. Mannesmann was in turn acquired by Vodafone. That deal and the subsequent sale of Mannesmann to Vodafone netted Hutchison nearly US $21 billion.