Telekom shares floored

August 17, 2001 Posted: 1134 GMT

LONDON (CNN) -- Europe's No. 1 telecom firm Deutsche Telekom has sprung a leak in its share price and there is little to stop it falling further, say analysts.

The company's stock has fallen by a more than a quarter since early last week when Deutsche Bank sold 44 million Telekom shares in a complex deal on behalf of Hong Kong-based port-to-telecom conglomerate Hutchison Whampoa.

"Deutsche Bank has done a lot of damage to Deutsche Telekom," a telecom analyst told CNN.com, speaking on the condition of anonymity. "The price could go lower because investors are wary that more stock could be dumped."

	I'm convinced that Telekom is a business whose shares are trading below value at present
	Gerhard Schroeder German Chancellor

Hutchison received 206 million Telekom shares when the German company bought VoiceStream, a U.S. wireless-phone operator, as part of a $24 billion stock and cash deal. Under a "lock-up" agreement, some VoiceStream shareholders had agreed not to sell any of their stock before September 1.

Telekom's stock fell 2.2 percent to 17.56 in midday trade in Frankfurt on Friday, a fresh 42-month low. The shares are down more than 83 percent since hitting a high of 104 in March 2000.

The tumbling stock price and the spat that has ensued between Telekom and Deutsche Bank, Telekom's investment bank, has triggered concern in high places.

German Chancellor Gerhard Schroeder on Thursday voiced his dismay at the stock's retreat, which has hit the portfolios of hundreds of thousands of small sherholders in Germany. Telekom's £13 billion privatization in 1996 was the country's first move toward a U.S.-style culture of private share ownership.

"Naturally I am concerned about the current development of the share price," said Schroeder. "I'm convinced that Telekom is a business whose shares are trading below value at present."

Investment professionals mostly endorse that view, with many of them referring to the 30 level as a fair value for the stock.

But within Deutsche Telekom, there is clearly a sense that until it can dispel the air of panic that has accompanied the stock price tumble, there will be no swift recovery in the shares.

Mellower tone

Chief Financial Officer Karl-Gerhard Eick, in an interview published in the Wall Street Journal on Friday, tried to defuse the ongoing wrangle between the company and Deutsche Bank, saying he did not believe Germany's biggest bank was to blame for the slump or had meant to harm DT by carrying out the share sale.

That represents a distinct mellowing of the tone in the space of a few days. Last week Telekom didn't hide the fact that it was angered by Deutsche Bank's action: the bank had sold the shares 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.

Eick also explicitly absolved Hutchison Whampos of any blame, saying he didn't believe Hutchison broke a lock-up agreement by offloading the 1 billion-worth ($900 million) of shares. Telekom handed out 1.2 billion new shares when it bought VoiceStream, but Eick said he doesn't expect more than another 100 million to be sold between September 1 and December 1, when all restrictions on disposals are lifted.

The finance chief's Wall Street Journal interview came right after another step planned as a confidence-restoring measure. In an unusual move, Chief Executive Ron Sommer on Wednesday placed a full-page letter in German newspapers to debunk the notion that his company is on the skids.

Sommer said the battering the shares had taken was in stark contrast to the company's operating performance and strategic position, concluding that "the shares have lost value, but not substance".

His company's shares tumbled further in the days following the open letter. That's a sign that perceptions of disarray, once they take hold, can take a lot of shaking off. The coming weeks will show how good a job Sommer and Telekom are doing of convincing the markets that everything is under control.

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