T-Mobile shares have crashed just after the report revealed a possible merger with a majority owner, Deutsche Telekom. The “historic deal” was expected to boost the carrier’s stock market position, but it has instead backfired. The proposed merger would result in the creation of the world’s largest telecom company, surpassing China Mobile. However, investors seem skeptical about the move.
T-Mobile shares crash sharply after talks about Deutsche Telekom merger
The stock market’s response to the merger news was negative. T-Mobile’s pre-market trading share price fell by over $5. This drop further contributed to the broader decline, which pushed the company’s share price down about 25% over the past year. The latest prices sit closer to the 52-week low than the peak. The strong market reaction reflects the investors’ concern about the potential merger.
Moreover, Deutsche Telekom’s shares fell about 3% in Frankfurt trading. The major concerns of the investors are the scale and complexity of the merger, regulatory challenges, financial demands, and the proposed structure involving a new holding company. Several experts have also questioned whether the deal will marginalize at all, since Deutsche Telekom already owns about 54% stake in T-Mobile.
T-Mobile’s internal changes are another point of concern for investors
Beyond the challenges related to the merger, investors are also worried about the internal changes happening at T-Mobile. The carrier recently announced that it’s moving toward a fully digital model, where most of its customer interactions will happen through the T-Life app. Sure, the move will save operational costs for the brand. But it has also raised concerns about long-term commitments and the impact on the consumer service.
Another reason why investors aren’t very confident in the merger is the company’s valuation. Deutsche Telekom trades at a discounted rate compared to T-Mobile. For reference, it earns about $15 in market value per dollar of earnings vs more than $20 for T-Mobile. A merger could potentially dilute the value.
That’s not all. Some senior executives of T-Mobile recently sold company shares totaling roughly $151 million. While some say this is part of a personal portfolio, such a large transaction just before the news of the mergers surely raises some eyebrows.
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