Deutsche Telekom forced to find £2.8bn for T-Systems deal

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The Independent Online

The debt-laden Deutsche Telekom will have to find €4.6bn (£2.8bn) after DaimlerChrysler said it would exercise a put option to sell it a stake in a software company.

The German car maker, itself lumbering under a debt mountain, sold 50.1 per cent of T-Systems ITS to the telecoms group in March 2000. DaimlerChrysler said yesterday that it had exercised a put option, two years earlier than expected, to sell the remainder of the software company, formerly Debis Systemhaus, to Deutsche Telekom. T-Systems's product enables different softwares to work together.

The high price of the transaction for Deutsche Telekom reflected the much greater value attached to the software sector when the deal was struck in early 2000. Analysts said the latest cash call on Deutsche was unfortunately timed. For its part, DaimlerChrysler needs to raise cash as it struggles to turn around its loss-making Chrysler unit. Last year, Chrysler had an underlying loss of some €2.5bn and the group has said that making this year's earnings targets will be tough.

Deutsche Telekom is Europe's most indebted phone company, a massive €65bn in the red. There were already concerns that Deutsche Telekom may cut its dividend because of a tight cash position and the market was worried that a planned sale of cable assets may not go through.

Theo Kitz, an analyst at Merck Finck, said the concerns "mean that the group can't make any big takeovers which involve large cash components".

Deutsche Telekom said it could make the software payment but did not give details about how this would be financed. Its shares fell by more than 3 per cent on the news of the put option. The group has said that it plans to reduce debt to €50bn by the end of this year.

Deutsche Telekom is in the process of selling its cable assets to Liberty Media for €5.5bn and hopes to raise some €10bn from the listing of its T-Mobile mobile phone unit later this year. However, Liberty has suggested it may have to back out of the deal because of harsh conditions being imposed by the regulator.