Deutsche Telekom's Advice: Skip a Movie, Buy Its Stock
YOU can hardly miss the ads, with their distinctive hot-pink color scheme. All sorts of regular folks are pictured making a "T" sign symbolizing Deutsche Telekom (DT) shares. These people are eager to buy in, the message goes. And you'll be able to buy a share for what it costs to take your family to the movies, DT chief executive Ron Sommer has promised.
When DT, the state-owned German telephone company, goes public this fall, it will make history: Its stock offering will be the largest ever in the Western world.
Beyond that, it could help transform the investment cultures, and hence the economies, of Germany and Europe. The potential for much-improved telecommunications here - with all that implies in the global information age - is only part of the story. The DT float could also create millions of new capitalists, small investors in the market for the first time, as the hugely successfully British Telecom privatization did in 1984. It could shift German investors away from debt instruments toward equities.
And it should enlarge the pool of stock available to managers of corporate pension funds, perhaps strengthening the private pension system at a time when the government retirement system faces strains from an aging population.
The huge DT offering has its risks. "It's not unrealistic," Rudiger von Rosen, president of the German Share Institute here, says of the size of the offering. But 15 billion marks (about $10 billion) is approximately the total value of all German share issues over the past five years.
Still, the global marketplace has been crowded with telecommunications privatizations recently, including a "disastrous" one by Indonesia, says William Megginson, an international finance expert at the University of Georgia, Athens, Ga. And the industry is much more competitive than it was a dozen years ago, he adds.
DT itself, the phone giant of Europe, is regarded as something of a technological laggard, with too many employees (though that's changing) and poor service. And the company lost points with the financial community last month for having to announce that preliminary figures showed 1995 sales below forecast.
On April 3, DT hit another apparent bump in the road. The European Commission indicated it would delay DT's implementation of a rebate program for corporate clients. The rebates were central to DT's efforts to retain big customers after the European telecommunications market is liberalized in 1998.
A key point for the success of the issue will be price. British Telecom did so well partly because shares were offered at a price low enough that buyers saw a gain the first year. More recently, privatizers of French and Italian state enterprises asked top price - with much less success. Given DT's high visibility, says Dr. Rosen, the risk of shares being overpriced and falling immediately "has to diminish to zero."
The exact price will not be set until shortly before the shares are offered in November. But DT spokesman Stephan Althoff says, "Of course we understand the importance of a realistic initial price for the shares.... And we know that success of the offering depends on our being able to develop whole new groups of private investors." These German private investors are important to DT because the international institutional investors will be looking to them to see how they respond to the offer, he adds.
After the November offering, and a second one planned for some time in the next couple of year, two-thirds of DT will still be in state hands.
But enough shares should be in private hands to have the same effect on the German investment culture as the British Telecom privatization had. This was a "transforming event" in Britain, Mr. Megginson says: 3 million shareholders were created as 50.2 percent of the company was sold off for 3.9 billion pounds ($6 billion). At the time, it was the biggest stock offer ever. Now that record is held by Japan's Nippon Telegraph & Telephone, with three 1987-88 offerings totaling $77 billion. Soon DT will be No. 1.