Shares of Deutsche Telekom were down in early trading on Monday after the merger talks collapsed between its unit T-Mobile US and Spring Corp, which would have created the No. 3 player across the U.S. market.
The evaporation of the synergies that market analysts estimated at being higher than the market capitalization of $27 billion for Sprint triggered several downgrades by brokers and sent the stock of Telekom down by 3.6%.
However, some praised the exercising of discipline by Telekom in not reaching an agreement to pay a hefty premium for Sprint, which is heavily-indebted, and insisting that it would have control that would have given it the ability to consolidate the newly formed entity into its own results.
CEO at Deutsche Telekom Tim Hoettges said that T-Mobile, in which the telecom owns a stake of 64%, would move forward with its strategy that has added over one million customers for 18 straight quarters.
One market analyst in London said that T-Mobile US was doing well enough to succeed without Sprint. He added that for Deutsche Telekom he did not see that the fallout of the deal would alter the company’s strategy.
He added that the company would return to its business as usual.
The drop in share price of Telekom was similar to the market in Tokyo for Sprint’s majority owner SoftBank, whose owner Masayoshi Son got cold feet with relinquishing control.
On Sunday, SoftBank said it would increase its Sprint stake to just less than 85% from its current 83% in a sign of its commitment to the U.S. wireless carrier, which is the country’s fourth largest. While Sprint has managed to grow its overall customer base, it is weighed down by debt of more than $38 billion.
T-Mobile’s importance of driving growth, which likely would have been increased by the deal with Sprint, is likely to be underscored when its parent, Deutsche Telekom posts its quarterly results during this week.
Results for the quarter have already been reported by T-Mobile with revenues for the third quarter topping $10 billion for only the first time, which was an increase of 8%.
For Deutsche Telekom the outcome will likely be different on Thursday, with analysts forecasting its group revenues will reach €18.4 billion equal to $21.4 billion, a gain year on year of only 1.6%.
That would leave little positive growth in the crowded and very regulated home market of Telekom, where sales were up just 0.4% during the first six months of the year and its holding in Europe were up just 1.5%.