US$13 Billion Privatization of Deutsche Telekom: Largest IPO Ever

Theme: Clients

In 1996, Goldman Sachs serves as joint global coordinator on the US$13 billion privatization of Deutsche Telekom AG, Europe’s largest telecommunications service provider and the largest equity offering to date.

In 1996, Goldman Sachs served as joint global coordinator on the privatization of Deutsche Telekom AG, Europe’s biggest telecommunications service provider. The US$13 billion IPO (DM 20 billion) was the largest ever and the capstone of years of intense effort by the firm to build its investment banking franchise in Germany.

To grow its presence in Europe, the firm employed a country-by-country strategy of building key relationships with top decision makers. While each local market had its challenges, the barriers to entry for a non-German investment bank in Germany were particularly formidable. Even smaller local banks ceded larger domestic deals to the biggest German banks, a concession to deeply entrenched and seemingly impenetrable relationships.

The pending Deutsche Telekom privatization deal was on the Goldman Sachs radar for years, with the firm constantly working to prove to its German counterparts – and particularly the German government – that Goldman Sachs was best-suited for the enormity of the task. Among the firm’s credentials was a track record of successful privatizations, including Spain’s Telefonica (1987), as well as telecom privatizations in Mexico, New Zealand, Singapore, Denmark and Holland. This deal would dwarf them all as Deutsche Telekom was the largest European phone company and the third largest in the world.

Deutsche Telekom offering's launch on the New York Stock Exchange

Goldman Sachs was already an important presence in Germany, serving as the leading advisor to the Treuhandanstalt, the agency established to privatize significant sectors of the East German economy since the beginning of the 1990s. The firm also had advised Deutsche Telekom on its largest acquisition, a 30% stake in Hungarian telecommunications company Matav, as well as a joint investment with French Telecom to form the Global One Alliance with Sprint America. This track record in telecom privatizations was a key factor in securing the mandate for the extraordinary deal.

On November 18, 1996, Deutsche Telekom AG began trading on the Frankfurt and New York stock exchanges. The next day, shares were also listed on the Tokyo exchange. The offering was oversubscribed more than five times, and shares traded at nearly 20 percent over issue price on its first day in Frankfurt, up 16 percent in New York. The German government retained nearly three quarters ownership at the time of the IPO. This would gradually be reduced as the government began to transfer shares to the government-owned development bank, Kfw.