DEUTSCHE TELEKOM'S $50.5B TROUBLED BID FOR VOICESTREAM.

In a move designed to make it the first wireless company which operates in both Europe and North America, and a major step in providing customer access for cell phone usage anywhere in the world, Germany's Deutsche Telekom AG has approved the $50.5 billion acquisition of VoiceStream Wireless Corp. The deal will involve $55.5 billion in cash and stock, and $5 billion in acquired debt.

The proposed transaction has major governmental hurdles, a principal one being the fact that the German government owns more than 25% of Deutsche Telekom, and its acquisition of U.S. telecommunications facilities will certainly encounter strong opposition on Capitol Hill. Many European companies would perceive any government effort at blocking the merger as being ultra protectionism, which could lead to trade retaliations. Approval of the transactions will minimally take 9 to 12 months.

According to industry analysts, Deutsche Telekom is paying a substantial price for the 2.3 million wireless subscribers of VoiceStream, a company that has never been profitable since its inception in 1999. Because of its position as the nation's eighth largest wireless company, its rapid growth rate and geographic reach represents a significant opportunity to Deutsche Telekom as a substantial foothold in U.S. telecommunications.

Should the investment fail because of governmental opposition, as it well might, Deutsche Telekom will still make a $5 billion cash investment designed to allow VoiceStream to bid in the September FCC auctions for a new generation of mobile telephones. The investment will result in a 10% stake in VoiceStream regardless of what happens with respect to the acquisition.

Despite regulatory opposition, the deal is likely to be approved if the German government reduces its stake to less than 25%, long considered the touchstone of foreign ownership allowable in domestic telecommunications entities.

Deutsche Telekom had recently failed in its efforts to acquire other communications interests such as Qwest Communications International and Telecom Italia as well as Sprint.

The fears about foreign ownership of American telecommunications companies is not be underestimated as evidenced by the aggressive opposition voiced by Congressional leaders. The Justice Department will review competitive issues on the transaction and the FCC will examine communications policy questions such as foreign ownership.

The transaction makes VoiceStream a stronger competitor to U.S. industry giants such as AT&T, so that their voices will inevitably be heard on Capitol Hill.

Since a portion of the transaction is in shares, the $50+ billion acquisition costs may ultimately be adjusted downward although the day after the announcement, the transaction was still valued at $44.86 billion with an additional assumption of $5 billion in debt, and an investment of $5 billion in working capital for VoiceStream. There is no protection for the transaction of any decline in Deutsche Telekom's share price.