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. Last Updated: 07/27/2016

German Telecom, Sprint Mull Merger

FRANKFURT, Germany -- Deutsche Telekom AG has held preliminary merger talks with U.S. telecom operator Sprint Corp. but could face opposition from the U.S. Senate, international newspapers reported Monday.

The reports come after last week's U.S. and European regulatory opposition to a $120 billion bid by U.S. WorldCom for Sprint that watchdogs said would violate Internet and long-distance antitrust rules.

Britain's Financial Times newspaper, citing "one person close to the discussions," reported Monday that Telekom had held informal talks with Sprint.

Telekom is openly seeking U.S. expansion and is widely expected to take a close look at Sprint.

But The Wall Street Journal on Monday reported that U.S. Senate leaders have signaled opposition to a possible takeover of Sprint by Telekom as being contrary to U.S. law and a potential threat to competition.

The Wall Street Journal cited a letter by senators to Federal Communications Commission Chairman William Kennard, noting that U.S. law bars transfer of FCC licenses to companies that are more than 25 percent owned by a foreign government. The German government retains a majority stake in Telekom.

Germany's Welt am Sonntag newspaper reported at the weekend that Telekom and Sprint were discussing a share swap similar to the one used for the merger that created DaimlerChrysler AG and that Telekom could pay about 240 billion Deutsch marks ($117.5 billion) for the U.S. group.

Telekom declined to comment on the Welt am Sonntag report on the weekend and there was no comment immediately available from the company about the FT report Monday.

The former German telecom monopoly owns 10 percent of Sprint at this time, as does France Telecom - a legacy of their former three-way alliance in the GlobalOne corporate communications network, now owned by France Telecom.

Bonn-based Telekom, which still derives the vast bulk of its revenues from domestic operations, has amassed a large war chest.

Last month, it won shareholder backing to issue up to 1.5 billion new shares within the next five years, furnishing it with some 90 billion euros ($86.21 billion) in acquisition currency at current values.

Telekom also has cash from a $14.5 billion record-breaking corporate bond issued last week.

Telekom chief executive, Ron Sommer, has said he wants his group to be as big in the United States, the world's largest telecom market, in the long-term as it is now in Europe.

But analysts say Sommer is unlikely to rush into a deal because he will want to avoid a fresh takeover fiasco following the abandoned bid talks with U.S. carrier Qwest in March and an aborted merger with Telecom Italia last year.

Sommer confirmed in an interview in Germany's Bild am Sonntag on Sunday that the group was looking for a firm acquisition in the United States.

"The U.S. market is the next focus. We're thinking clearly of a takeover there and not a loose alliance," he said. But he added: "The group must fit us and the price must be right."