Deutsche Telekom and T-Mobile in early talks for mega merger, sources say

By Hakan Ersen, Elvira Pollina and Supantha Mukherjee

BERLIN/MILAN/STOCKHOLM, April 22 (Reuters) - Deutsche Telekom DTEGn.DE is exploring a deal to combine with its U.S. unit, T-Mobile US , to create a transatlantic telecoms giant in what would be the largest ever public merger, two people familiar with the matter said.

The German group's shares fell about 5% on Wednesday after news of the talks, first reported by Bloomberg. Telekom already owns a 53% stake in T-Mobile. T-Mobile shares were down 3% in pre-market trading.

The merger talks, long mooted and still at an early stage, could create a company with a market capitalisation of nearly $300 billion, making it the world's most valuable telecoms group with more than 200 million mobile subscribers.

That scale could bolster financial firepower and support further acquisitions, Morgan Stanley analysts said.

"The real appeal is gaining the benefits of control while still preserving the agility and valuation upside of T-Mobile as a standalone business," said PP Foresight analyst Paolo Pescatore, adding that T-Mobile has increasingly become the "engine" of Deutsche Telekom.

Deutsche Telekom's ownership of T-Mobile dates back 25 years and has fluctuated over time. Since 2020, the German group has moved to tighten its grip. CEO Timotheus Hoettges is chairman of T-Mobile's board.

REGULATORS LIKELY TO SCRUTINISE ANY DEAL

The complex potential deal is aimed at reigniting growth in a stagnating telecoms sector, though it could face major regulatory and geopolitical hurdles. It comes amid strained diplomatic and economic ties between Germany and the U.S., clouded by tariffs and tensions over the war in Iran.

Blair Levin, policy adviser at New Street Research, said a deal would likely face heavy scrutiny in the U.S., but was unlikely to be blocked on purely regulatory grounds, even if it triggered political resistance.

"The bottom line is that while there will be antitrust, national security, and regulatory investigations, those investigations are unlikely to find a problem that results in the U.S. government blocking the deal," he said.

"However, the Trump Administration will likely use the leverage created by the deal process to advance goals unrelated to traditional transaction concerns and that is where it could get tricky."

Any deal would also require support from the German state, Deutsche Telekom's single biggest shareholder, with a 28% stake held roughly equally by the government and state-lender KfW, whose holding could be diluted in a merged group.

Deutsche Telekom and T-Mobile declined to comment. The German government did not immediately respond to a request for comment.

Burdened by billions of euros of debt, European telecom companies operate in fragmented, highly competitive markets and have been seeking new avenues for growth. The talks also come as dealmaking has begun to recover following the Iran conflict.

COULD BE BIGGEST PUBLIC MERGER ON RECORD

Deutsche Bank analysts said a transatlantic group could find it easier to tap capital markets to pursue cross-border deals in Europe and the U.S.

A deal also makes strategic sense for Deutsche Telekom as T-Mobile has become an increasingly important driver of group performance given the stronger growth profile of the U.S. market compared with Europe, analysts said.

Under the proposal, a new holding company would make an all-share offer for both firms, be owned by existing shareholders and list in both the U.S. and Europe, Bloomberg said.

Such a transaction would surpass the $202.7 billion Vodafone-Mannesmann merger announced in 1999 - currently the biggest deal on record, according to LSEG data. Deutsche Telekom has a market value of about $166 billion, while T-Mobile is valued at about $218 billion.

T-Mobile's stock has lost a quarter of its value in the last year, while Deutsche Telekom shares are down about 10%.