VoiceStream to Buy Powertel for Nearly $5 Billion

BELLEVUE, Wash. â€”  VoiceStream Wireless Corp., a mobile-phone company being bought by Deutsche Telekom, on Sunday agreed to buy Powertel Inc. for nearly $5 billion in stock to form a nationwide U.S. wireless network.

VoiceStream will trade 0.65 to 0.75 share of its stock for each share of Powertel, valuing the transaction at $85 a share, or $4.75 billion. It will also assume about $1.25 billion in Powertel debt.

Powertel served 727,000 customers at the end of June in states including Georgia, Florida and Alabama. Powertel owns wireless licenses covering 25 million people and operates a digital wireless network spanning 12 states in the Southeastern United States, in areas where VoiceStream currently does not market its wireless services.

Bellevue, Wash.-based VoiceStream has 2.6 million subscribers throughout the Northeast, Midwest and Pacific Northwest. They can use Powertel’s network because both carriers employ a technology standard that dominates in Europe. It’s also cheaper for VoiceStream to buy cellular towers and transmission equipment than to pay Powertel to use them.

“Rolling up Powertel gets [VoiceStream] an immediate market presence [in the Southeast], though it’s not absolutely necessary,� said ABN Amro Inc. analyst Kevin Roe. That’s because VoiceStream owns licenses for wireless capacity in the region, though it hasn’t built a network there yet, he said. Roe rates VoiceStream shares a “buy.�

In trading Friday, Powertel advanced $4.69 to close at $86.63, VoiceStream rose $2.69 to close at $118.19, and Deutsche Telekom’s American depositary receipts, each representing one ordinary share, rose $1 to $40.31.

Before the proposed acquisition of West Point, Ga.-based Powertel, VoiceStream said last month that it expected to have 4 million customers by 2001. The companies are among the smallest U.S. wireless operators, trailing Verizon Wireless; the planned venture of SBC Communications Inc. and BellSouth Corp.; AT&T; Wireless Group; Sprint Corp.’s Sprint PCS unit; Alltel Corp.; and Nextel Communications Inc.

The German government owns 56% of Deutsche Telekom, but that stake will drop to 45.7% if the VoiceStream transaction is completed. Federal Communications Commission Chairman William Kennard has said his agency will scrutinize any bid for a U.S. phone company by a company owned by a foreign government.

Members of Congress have asked the FCC to block any U.S. purchase by a company more than 25% owned by a foreign government. European Union officials said the U.S. would be violating World Trade Organization rules if it passed a bill limiting foreign government ownership of U.S. phone companies.