Citing people familiar with the situation, the FT said that Deutsche Telekom has held initial talks with EDS and is considering merging the services giant into its struggling T-Systems division, which provides IT and network services. This combined entity would then be spun out and taken public.
EDS’s market capitalization is currently just over $10bn, and any acquirer would be expected to pay a significant premium on top of this. The FT said Deutsche Telekom was therefore considering partnering with a private equity group to fund any potential takeover.
While Deutsche Telekom has not publicly commented on the speculation, company sources have been quoted denying the reports. Meanwhile, shares in EDS fell by over 3% in early trading on the New York Stock Exchange.
Any move by Deutsche Telekom for EDS would represent a major turnaround in the company’s strategy. The company had told investors that it was focusing its acquisition strategy on mobile phone operators, and just last month it completed the takeover of Orange’s mobile and internet operations in the Netherlands for 1.3bn euros ($2.0bn).
The T-Systems business has been in the doldrums for some time. In its most recent quarter, the operation’s sales fell 8% on the same period of the previous year, dragged down by domestic sales which dropped 11%. Over the first nine months of 2007, T-Systems’ revenue fell 7%, and Deutsche Telekom has spent most of the year trawling for a partner to bolster the operation’s international presence.
Deutsche Telekom CEO Rene Obermann said in August that it had held talks with several suppliers with regards to partnering with T-Systems, but had failed to secure an agreement.
Early in October, T-Systems appointed an ex-EDS employee to head up its operations. Reinhard Clemens, who will assume the role next month, was previously in charge at German services company Systematics, which was bought by EDS in 2001. He subsequently rose through the ranks to become regional manager for EDS’s EMEA Central business.
