Deutsche Telekom Considers Two Eastern European Deals - Sources

By Eyk Henning and Dana Cimilluca

FRANKFURT--Germany's Deutsche Telekom AG (DTE.XE) is considering two transactions in Eastern Europe to strengthen its position in the region, several people familiar with the matter said.

Europe's largest telecom company by revenue is in talks to take over GTS Central Europe for about 600 million euros ($775.7 million), three people familiar with the transaction said. GTS, headquartered in Warsaw, is a broadband optical and IP network provider and voice and data communications service owned by financial investors Columbia Capital, M/C Venture Partners, Innova Capital, HarbourVest Partners, Oak Investment Partners and Bessemer Venture Partners.

Deutsche Telekom could also come under pressure to purchase the outstanding 40% stake of its T-Mobile Czech Republic unit that was recently put up for sale by private equity firm Mid Europa Partners, one of the people added.

A spokesman for Deutsche Telekom declined to comment. Mid Europa Partners wasn't available for a statement.

The deals add to the list of clean-up transactions that Deutsche Telecom is implementing to streamline certain operations and strengthen its position in specific core markets at the same time.

Most recently, the company acquired U.S. mobile phone operator MetroPCS to widen its footprint in the country. It is also reportedly considering cutting its stake in the U.K. mobile phone joint venture Everything Everywhere it holds with France Telecom (FTE.FR) as well as in its online classified advertising unit, Scout24.

Central and Eastern Europe, in contrast, "has been defined as a core market for Deutsche Telekom despite the recent economic headwinds in the region," analyst Wolfgang Specht from Bankhaus Lampe said. He added it would therefore make sense to strengthen operations in existing markets.

GTS Central Europe, a leading infrastructure-based provider of telecommunications services for businesses, recorded earnings before interest, taxes, depreciation and amortization of EUR103 million on revenues of EUR387 million last year. The company owns and operates an extensive fiber optic and data center network throughout Central and Eastern Europe, offering basic voice and data to complex virtual private networks and managed data center services.

The timing of deal for GTS, and whether there are other bidders, is unclear.

The deal with T-Mobile Czech Republic, the largest mobile telecommunication provider in the country with around 5.5 million subscribers, is different, as Deutsche Telekom is content with its 60.8% controlling stake it valued at EUR1.75 billion at the end of last year, people familiar with the company's thinking say.

Deutsche Telekom's preferred option would be another financial investor to assume MEP's stake, but is ready to buy the stake should an unwanted suitor emerge, these people say.

Mid Europa Partners, a buyout fund focused on Central and Eastern Europe and Turkey, has acquired a stake in the holding company Falcon that holds a minority stake in T-Mobile Czech Republic in 2006 and purchased an additional stake in the company in November 2008.

At 1456 GMT, Telkom traded at EUR9.28, up 0.3%.

(Archibald Preuschat in Frankfurt contributed to this article.)

Write to Eyk Henning at [e-mail]

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