Deutsche Telekom II
After Deutsche Telekom debuted on the stock market in November 1996 with the largest ever European equity offering, any follow-up deal was going to be hard to sell. Most international institutional investors bought the shares first time around. But by turning part of the second stage of Deutsche Telekom’s privatisation into the first ever pan-European retail offering, Dresdner Kleinwort Benson (DKB) and Deutsche Bank managed to sell a mammoth €10.4 billion of stock in the 1999 deal.

“It was the first and so far the only time that people have gone cross-border at retail,” says Andy Edmond, London-based co-head of global equities syndicate at DKB, the sole bookrunner for the retail part of the deal, which formed €7 billion of the total placement. Targeting European retail investors who missed out on the initial public offering was a smart move, say analysts – demand was such that 32% of the retail offering was sold outside Germany.

Institutional investors were still attracted to the secondary offering, in which the government reduced its ownership by choosing not to participate in the capital-raising exercise, thereby allowing its stake to be diluted from 72% to 66%. Some institutional buying was attributed to the reweighting of the stock to give full market capitalisation on the Dax 30, the German large-cap stock market. Index-tracking fund managers were then obliged to buy shares, in order to maintain a balanced portfolio. But both the banks and fund managers feel this may have obscured a fundamentally positive story for the company.

“The management had demonstrated that they could deliver on things like internet strategy,” says Adrian Darley, investment manager for European equities at UK fund manager Gartmore in London. “The cost-cutting has come through and the management have steered this company pretty effectively to success.” Despite a failed deal with Telecom Italia, investors were confident that Deutsche Telekom was going to play an important part in consolidation in the European telecoms sector – a belief justified by its later acquisition of UK telecoms firm One2One.

“You had a triple situation of an untested pan-European retail offering, an extremely busy calendar for issuance and the reshaping of the telecoms sector in Europe,” says Flavio Valeri, director of equity capital markets at Deutsche Bank in London. “We priced the deal at €39.5 and now it’s about €70, so I think people enjoy owning the stock.” He won’t have to wait long to find out – another offering from the company is already being planned for later this year.