How do you convince the average German, a notoriously risk and stock-shy creature, to buy shares of the former German telephone monopoly that had come to symbolize poor service and high rates?
That was the task when the gigantic sales pitch for Deutsche Telekom’s initial public offering went into full gear in the fall of 1996. Germans were pounded with a media blitzkrieg of billboard, print and TV advertising for two months leading up to the initial public offering of “T-shares” (T-Aktien) on Nov. 18, 1996. It was virtually impossible for anyone in the country to escape this intense wooing of potential new stockholders. The German telephone and communications behemoth and German banks (which also act as stock brokers) resorted to special “early bird” offers and even a form of investment insurance, “Safe-T” shares, that protected stockholders from any loss of capital, something The Christian Science Monitor termed “capitalism with training wheels.” An outsider might wonder what all the fuss was about, but Deutsche Telekom (DT)* and the German government had a lot to lose if Germans passed up the chance to buy the 500 million T-shares being offered to the public.
*Since April 2010, Deutsche Telekom AG has combined the former wireless T-Mobile (in Germany) and T-Home landline/internet divisions into one brand known simply as “T” in Germany.
|DT Shares - Then and Now
Those Germans who took a chance and invested in DT’s new offering back in 1996 — and held those shares — were sitting pretty in 2000. But by mid-2001 their DT stocks had fallen back to 1996 values (about $25.00). By early 2009 a DT share was only worth about $12.90. On August 16, 2010 DT (now DTEGY.PK) closed at $13.55. At the end of trading on June 9, 2011 a DTEGY.PK share was worth $14.71.
But in 1996, neither the German government nor Deutsche Telekom was risking everything on its initial public offering. Even after the sale of T-Aktien worth about $12 billion, the government still owned a whopping 74 percent share of DT. But several things were at stake beyond attracting money for DT’s private capitalization. For one thing, Germany suffers from a chronic lack of capitalization for its business enterprises, both large and small, new and old. As mentioned in The German Way (“Business in the German-speaking world”), Germans have traditionally avoided equities for less risky investments such as bonds and saving accounts. The percentage of stock ownership is lower in Germany than almost any other modern industrialized nation (although the rate has gone up in the last few years). This reluctance to buy stocks makes it difficult for German companies to finance expansion or for start-ups to get off the ground. Additionally, the German national pension system, not unlike the US Social Security system, is headed for bankruptcy as fewer workers support an increasing number of retirees. An increase in stock buying would do two things: (1) help create jobs by increasing available capital for expansion and new businesses, and (2) help expand investment for funding retirement — both by individuals and pension plans. The government also would face budget problems if the initial public offering did not fly and help finance DT’s huge infrastructure costs in eastern Germany. In addition, a failure of the stock float would have meant a loss of prestige for DT and dealt a blow to German and European efforts at more privatization of state-owned enterprises.
The pessimistic view of the Deutsche Telekom privatization sale, both in Germany and abroad, emphasized the company's liabilities: its old monopolistic mindset, looming competition by 1998, high debt, overstaffing, a strong union, and the burden of bringing eastern Germany into the electronic 21st century. Ron Sommer, DT’s chairman, had a different view, of course. He claimed the company was already changing and becoming much more competitive. He also pointed to DT’s 20 percent share in a joint venture with Sprint and France Telecom as another sign of his company's strength. (That argument didn’t hold water after the Sprint cooperation deal evaporated in 2001.)
As it turned out, there were more optimists in Germany than even most optimists had believed. The advertising avalanche was wildly successful. In December 1996, Deutsche Telekom AG announced that it had sold 90 million more shares than anticipated for its privatization, for a total of 713.7 million shares worth $11.5 billion — less than the $15 billion DT had originally hoped to raise, but still a very respectable sum. DT shares were also sold as ADSs on the New York Stock Exchange. The stock ranged from a high of almost $25.00 to a low of $18.25 over the last half of 1996. On 17 Dec. 1996 each DT share was worth $20.75 on the US exchange. About a month later (Jan. 22, 1997) the stock was trading at just over $19.00 in New York. On 11 March a DT share was worth about a dime less than $20.00. On June 27, 1997 Telekom shares closed at DM43.00 ($24.91) on the Frankfurt stock exchange (die Deutsche Börse), somewhat paralleling a 31.4 percent rise in the DAX, the German "Dow-Jones" index. But over the next few months the DAX dropped. On August 26, 1997 DT closed at $21.19 on the NYSE. But during 1998, despite some ups and downs, DT’s stock began to gain some strength.
Enter the euro (€)
A new element was introduced on January 1, 1999 — the euro (€). As of that date all stock markets in the eleven euro zone countries began quoting stock prices in euros. This meant that French, German, Italian, Austrian, Dutch, Spanish, and any other eurozone stock exchanges now quoted their stock prices in euros. No more pesetas, lira, deutschmarks, or francs (except in Switzerland, which is still outside the euro group). As of January 25, 1999, one share of DT was worth 36.40 euros ($42.19, DM71.19), representing better than a 200-percent increase over the price of a DT share at the end of 1997. On the New York exchange, DT’s ADS shares were worth an even $43.00 each as of Feb. 12, 1999. (DT had reached a high of $47.00 in New York for the year to date.)
No Y2K Problem
In early 2000, DT’s stock was going like gangbusters! On March 6, 2000 Deutsche Telekom closed at an all-time high of US$94.93 (104 euros). But as it turned out, that peak was the time to sell. By mid-August 2001, DT’s value had slumped to a miserable 18 euros, close to its IPO price of 14 euros. Investors still holding DT shares could only hope the stock would climb back to at least the 30-40 euro levels of 1999. But DT’s purchase of VoiceStream Wireless in June 2001 and the 532 million DT shares it issued for that purchase spooked investors. Despite some strength in DT’s T-Mobile division, in early 2005, a DT share was worth about $21.00. - To find out what a DT share (ADS stock symbol DTEGY.PK) is worth today, see the link below.
Whether there will be long-range changes in German attitudes about stock ownership remains to be determined. The recent fall in the value of German stocks is reminiscent of what happened several decades ago. Then Germans were willing to buy securities, but after a few unpleasant surprises during the Cuban missle crisis and the 1970s oil crisis, they became more risk averse in the 1980s and '90s. Although they are coming down, each share of a German stock also tends to be expensive. Many of the stocks on the Frankurt exchange cost hundreds or even thousands of euros per share. But a stock-split trend in recent years has reduced the per-share cost of some previously pricey German stocks: Allianz (insurance, from $1732 to $329 per share) and VW (from $454 to $74).
Many Germans jumped on the Deutsche Telekom bandwagon, only to get burned if they didn’t get out at the right time. Whether T-shares will hold both their lure and their value over the long haul remains to be seen.
Web content ©1997-2011 Hyde Flippo
- Business and Economy in German-speaking Europe
- Business in the German-speaking world - from the German Way
- Money, banks, and credit - from the German Way
- German Money for Travelers
- Telephone Tips for Germany (for Deutsche Telekom and others)
- The iPhone in Germany - Tips for travelers and expats
- The GW Expat Page
- Deutsche Telekom AG - About the company (in English)
- Deutsche Telekom International
- Deutsche Telekom in Germany
- Die Deutsche Börse (Frankfurt Stock Exchange) - in English or German. Check the symbol DTE for Deutsche Telekom AG shares.
- NYSE - The New York Stock Exchange. Several German companies are now listed in New York, Deutsche Bank and SAP among them. Others, such as Deutsche Telekom (DTEGY.PK) sell on the NYSE as ADS (American Depository Shares).
- T-Mobile - Deutsche Telekom bought the US company VoiceStream in June 2001, helping to create the GSM cell phone network known as T-Mobile.