Deutsche giants clash

August 10, 2001 Posted: 1407 GMT

LONDON (CNN) -- Concern about Deutsche Telekom investors dumping their stock has wiped 17 billion euros ($13.6 billion) off the company's value this week.

It came to light on Tuesday that an unidentified investor sold 44 million shares, and experts say millions more could hit the market in the coming weeks, changing the balance of supply and demand for the stock.

It was Deutsche Bank that carried out the share sale, getting a price of 23.60 a share, but it wouldn't name the customer it was acting for. Frankfurt stock exchange rules do not require the disclosure of the party that ordered the sale.

Telekom on Friday expressed its anger with Deutsche Bank over its conduct in selling the shares.

The phone company was especially riled by the fact that the bank reported the sale a day after its research department had reiterated a "buy" recommendation on Telekom shares, saying it expected the price to rise to 31 by the end of this year.

The circumstances of the share sale prompted the Frankfurt stock market regulator to say it would investigate Deutsche Bank's conduct in selling the stake. The authorities noted that the disposal closely followed the bank's "buy" tip.  

Telekom shares hovered at 20.08 on Friday, just above a 40-month low of 19.93 that they reached the previous day. Telekom stock has plunged 80 percent from a high of  104 in March 2000.

Holger Grawe, a fund manager at WestLB Panmure, is a holder of the shares and expects them to rally in the coming months, but even he acknowledges that large-scale share sales will probably affect the stock price. Any such disposals "would likely soften any share price increase" for the rest of the year, Grawe told CNN.com.

Analysts at WestLB Panmure this week cut their price target for Telekom shares to 28 from 33, citing the likely impact of selling by shareholders.

Telekom still worth 85 billion

Deutsche Telekom, Europe's biggest phone company by sales, is still worth a sizeable 85 billion. And it isn't the only one in its industry that has seen its valuation plummet in recent weeks, amid worries about telephone companies' mounting debts and economic slowdown.

One of its nearest European competitors, France Telecom, is down more than 22 percent since early July.  

But the German company has a special problem as a result of its $24 billion purchase this year of U.S. mobile-phone operator VoiceStream Wireless.

In payment, it gave VoiceStream's  shareholders stock, and many of these investors are now thought to want to turn their Telekom shares into cash.

It got agreement from the investors that they would not sell their shares before September 1. That means, however, that investors will be free to dump their stock after that date.

Reluctant shareholders wait

Many are expected to do so. After the VoiceStream deal, millions of Telekom shares are in the hands of U.S. fund and pension managers who see the stock as falling outside their investment remit, because they have a strategic focus on U.S. equities.

Telekom estimates that between 50 million and 150 million shares could be in the hands of investors who are not long-term shareholders – the equivalent of 1.2 percent to 3.6 percent of its share capital, the Wall Street Journal reported.

There is even speculation that the seller of the 44 million shares that came to market this week may have been one of the investors supposedly bound by an agreement not to sell out before September 1.

"We are very disappointed by the conduct of Deutsche Bank, with which we have until now maintained good business  relations," a Telekom spokesman told Reuters late on Thursday.

The spokesman said he did not want to speculate about what consequences would arise from the episode.

Any breakdown in the relationship between the two pillars of the German business establishment, could threaten Deutsche bank with losing millions of euros worth of fees for corporate advisory work in future transactions such as stock flotations or takeovers.

The row comes at a time when dissatisfied investors in the U.S. have increasingly turned to the law to complain about what they see as misleading stock recommendations by investment banks.

Law firms have filed class action lawsuits against a number of Wall Street firms in connection with stock tips that they say cost their clients money.

	Want the full story? Search for free company info...
	Enter Company Name:-