Is Deutsche Telekom About to Blink?

April 4th, 2013 by · 10 Comments

With the MetroPCS shareholder showdown just eight days away, it appears that Deutsche Telekom may be about to blink. It’s been some six months since they made the bid, which would simultaneously boost T-Mobile USA’s spectrum position and distance the German incumbent from its US progeny.

Large shareholders have been agitating for a better offer for months, and they’ve been getting louder and more numerous. The prospects for winning the vote next week have been looking less and less good, although it’s not yet clear either way.

However, it’s clear that DT doesn’t have the momentum right now, and there is definitely a risk of getting rejected. Hence, DT is going to have to decide how much it really wants this deal to go through. Do they want it enough to sweeten the pot?

T-Mobile USA’s CEO John Legere has in the past indicated that it wasn’t a do-or-die situation, that it would just accelerate the company’s plans.  He and the rest of T-Mobile USA may be ready to fight on without the MetroPCS deal, but on the other hand this soap opera has gone on long enough that it may be the German parent that blinks rather than sign on for another season of ‘what will they do about their US problem’ hand wringing from the industry.

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Categories: Mergers and Acquisitions · Wireless

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10 Comments So Far

  • Anonymous says:

    I’m betting that DT doesn’t do this but rather invests/buys XO.

    • Because DT loves the telecom business in America so much, getting to work directly with Carl Icahn too would just be icing on the cake, right? 🙂 *shiver*

      • Anonymous says:

        I know … working with Icahn is challenging. But he’s one smart investor. What makes him so dangerous is its all his money … no one else can pull out but Carl himself. So he’s long on XO but not forever. He’s got what he wants .. the NOLs. He simply doesn’t need the rest unless you think he’s using the assets to help drive costs out of his other companies he has ownership positions in. In the end someone with deep enough pockets take XO. Why not DT?

        • Anonymous says:

          Just curious about the NOL’s – is Icahn able to use these NOL’s to offset income from his other companies and, if so, at what point do they get actually used? In other words, when is that no longer the reason given for him to own this company?

          • Whenever he has profits, but it does depend on how aggressive his accountants are when it comes to the tax laws. On the other hand, it’s not a reason to own the company, it’s not that hard to separate the assets from the NOLs from what I’ve seen over the years.

            • anon again says:

              Leucadia did it and CI already has that game plan mapped out for sure. Now it’s just when only the most interested party decides to jump into the ring with Carl Ali Icahn. He loves to fight and he has been preparing for this bout since 2003.

            • En-Ron-Hubbard says:

              He has unrestricted use of the entire NOL. That was reason A and B why he bought the company but needed over 90pct to get the prize, which is what he did– no surprise there.

              • Grant Lewis says:

                Pursuant to the Internal Revenue Code, usage of the
                Usage of NOLs requires that Icahn hold at least 80% of XO’s equity and voting power and the usage of the
                SRLY-NOLs required that Icahn hold 100% of XO’s equity and voting power.

                In June 2002, due to various factors XO filed for Chapter 11 protection under the United States Bankruptcy Code, and its Plan of Reorganization was confirmed in November 2002. As a result, Icahn converted debt acquired during the bankruptcy proceedings into 83% of XO’s new equity and 85% of X0’s new debt. As part of the bankruptcy reorganization, on January 16, 2003, XO and Starfire were consolidated for tax purposes and executed a Tax Allocation Agreement that provided that Icahn, through Starf ire, could use the NOLs to offset his tax liability from his other companies. Icahn and Starf ire were required to compensate XO for the NOLs only it XO was able to use the NOLs itself, but XO was unable to use the NOLs because it had no taxable income to offset. As such in 2003 and 2004 Icahn used approximately $450 million of the NOLs to offset his tax liability from his other companies.

                In January 2004, as a result of unexpected oversubscribed XO rights offering, Icahns equity and voting power fell from 83% to 61%. Consequently Icahn and his associates lost the ability to utilize the NOLs until he could re-consolidate starfire holdings for a period of 5 years due to a IRS imposed waiting period which would expire in 2009.

                Being Carl Icahn and not wanting to wait 5 years shortly before 2009 and with several potential bidders at the door to buy XO Icahn’s BOD issued a asset sale discontinuance and XO’s BOD recommended the 2008 recapitalization plan. Pursuant to this plan, XO issued $780M in two new preferred stock classes – Class b convertible stock and Class c perpetual perferred stock – for which icahn purchased in exchange for the retirement of XO’s icahns owned debt. When this occurred icahn’s equity converted from 50% to 85% fully diluted which immediately allowed Icahn to re-obtain use of the NOL’s subject to amended tax allocation agreement. In 2011 ACF industries (owned by icahn) made an offer to purchase all remaining shares that XO did not own.

                Icahn’s acquisition of 100% of XO through the ACF
                2011 Merger accomplished his ultimate goal of obtaining the use of over $2 billion of XO’s SRLY-NOLs. Icahn previously obtained the use of the NOLs when he reached an 80% equity and voting interest in XO,
                but he could not use the SRLY-NOLs unless he owned 100% equity and voting interest in XO.

                Icahn has full access to the remaining value of unused NOLs. No one will stop him from using it and quite frankly he probably already has.

  • just asking says:

    what is the remaining value of the SRLY-NOLs?
    does he generate income for NOL offset fast enough to justify the ownership of XO?
    is he the smartest guy in the room?

    • En_ron_hubbard says:

      Haven’t checked recently but probably in $3 b range. The extent he can now use them is only limited to the amount of pt income his related activities kick out. So the value is $3b times 35% discounted over the number of years he manages to use it all up. His long Herbalife position may screw with his plans.

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