Deutsche Telekom’s pending deal to purchase VoiceStream Wireless Corp., took a strange turn last week as apparent false correspondence concerning the merger from the offices of Federal Communications Commission Commissioner Gloria Tristani and Sen. Ernest F. Hollings (D-S.C.), ranking member of the Senate Commerce Committee, were circulated among brokerage houses.
A brokerage looking to manipulate VoiceStream Wireless’ stock price, which fluctuated wildly last week, is suspected in having sent the fraudulent correspondence.
The initial letter, addressed from Tristani’s office to Sen. Hollings, noted opposition to the proposed merger from the FCC. Tristani, who is seen as a strong advocate for consumer protection, released a statement saying she never sent a letter to Hollings regarding the DT/VoiceStream transaction.
“As a general rule, I do not comment on pending adjudicatory proceedings,” Tristani’s statement read. “In this instance, however, I want to make it clear that neither I nor any member of my staff has sent a letter to Senator Hollings regarding this transaction. I am deeply troubled that the commission’s process is being used for deceitful purposes, and I have asked the chairman to initiate a full investigation of this matter and to refer to other federal agencies as appropriate.”
A spokesman for VoiceStream Wireless echoed Commissioner’s Tristani outrage over the situation, noting that someone was using the pending transaction to manipulate the company’s stock, which saw trading levels last week more than double the average trading volume.
The second fraudulent letter, from Sen. Hollings’ office to Tristani, asked the FCC not to rule on the merger until the senator introduced legislation prohibiting the merger.
Sen. Hollings’ office said it heard of the hoax last Tuesday and referred the matter to the Senate’s Office of Legal Counsel per standard operating procedures.
“Senator Hollings has not corresponded with staffers or with Commissioner Tristani’s office,” Sen. Hollings’ office said. “This was undoubtedly a hoax.”
Sen. Hollings has opposed the merger request due to the German government’s stake in Deutsche Telekom, and plans to re-introduce similar legislation to what he introduced last year opposing mergers involving companies owned by foreign governments. FCC rules limit foreign government ownership of companies acquiring U.S. telecommunications companies to 25 percent. The German government currently owns 44 percent of DT, but has said it will sell of part of its stake in the future.
Sen. Hollings’ office was unclear if the proposed legislation would have any effect on the DT-VoiceStream deal.
FCC Chairman Michael Powell held a press conference last Thursday addressing the situation, noting the matter would be turned over to authorities if any wrongdoings were found.
“We are looking at what the option is, but I got to tell you if all this is what it might seem to be the actual forgery and fabrication of correspondence, that is a serious offense,” said FCC Chairman Michael Powell in a press briefing last Thursday. “The FBI, the SEC or any other number of authorities are deeply concerned. That’s market manipulation of the worst kind.”
“Despite some speculation to the contrary, we continue to believe that the Deutsche Telekom/VoiceStream Wireless combination is likely to be approved by the FCC,” said Legg Mason in a research report last week. “There was widely circulated speculation [last] Tuesday that two of the four FCC commissioners, specifically Commissioners Ness and Tristani, would oppose the deal. We believe not only that such a conclusion is premature but that ultimately, there will be a majority in favor of the deal.”
The report said it doubted that a draft order was yet circulating among the commissioners shedding doubt on a quick approval, but that it was unlikely Commissioners Ness or Tristani has hardened their stance against the transaction. The deal was expected to be approved this week, in line with the FCC’s non-binding internal timetable that expires this week.
“As far as reality is concerned, nothing happened,” said Legg Mason’s Blair Levin. “I don’t think this has affected the time table at all.”
Chairman Powell said the investigation into the fraudulent letters would not hold up the process.
Some proponents of the merger have blamed the FCC’s slow response on the deal for allowing both DT’s and VoiceStream Wireless’ stock to be manipulated. VoiceStream Wireless’ stock dropped nearly $10 per share last Tuesday to below $85 per share, the day the letters were first circulated, only to bounce back to more than $96 per share by Thursday. DT’s American Depository Receipts lost more than $1 per share on Tuesday to close at $22, before climbing to nearly $25 per share by Thursday.
Deutsche Telekom’s original deal to purchase VoiceStream Wireless was valued at more than $50 billion, but has fallen to less that $30 billion along with DT’s stock price.
