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Deutsche Telekom CEO Sommer Faces Criticism at AGM (Update1)
By Matthew Miller
Bonn, May 25 (Bloomberg) -- Deutsche Telekom AG Chief Executive Officer Ron Sommer a year ago told shareholders he'd cut costs and focus on profits after spending $60 billion on acquisitions. This week he posted his sixth quarterly loss.
At the annual general meeting Tuesday, Sommer will have to explain what went wrong. The stock has fallen to an all-time low - - below the 1996 initial public offering price -- and debt swelled to 67.3 billion euros ($62.1 billion) since the 52 year-old executive put his expansion plan into action.
``Nobody can be happy with Deutsche Telekom,'' said Rolf Drees, who helps manage 60 billion euros at Union Investment and holds 39 million Deutsche Telekom shares. ``We don't get the impression the company is very profit-oriented.''
Sommer spent $35 billion to buy the No. 6 U.S. mobile-phone operator VoiceStream Wireless Corp. since the last shareholder's meeting and failed to sell assets in time to meet debt reduction targets. Investors aren't pleased and want to know when his expansion strategy will start paying off, they said.
``We won't see whether these investments are successful for years to come but we see the big losses now,'' DSW shareholder group spokeswoman Petra Kruell said in an interview. ``Deutsche Telekom always holds up earnings before interest, taxes, depreciation and amortization as operating profit but we want to see improvements in the bottom line.''
Wider Losses, Falling Shares

Deutsche Telekom said Tuesday first-quarter ebitda rose 4.4 percent to 3.78 billion euros. The company's net loss in the quarter widened to 1.8 billion euros from a loss of 358 million euros a year earlier on writedowns for acquisitions and investments outside its home market.
``Deutsche Telekom is suffering after making expensive acquisitions,'' said Ludger Vossenberg, who helps manage 7.3 billion euros at SEB Invest GmbH in Frankfurt. ``And we've got a regulator here in Germany that won't allow them to take full advantage of their monopoly position, pushing prices down.''
Earnings at the domestic fixed-line phone unit T-Com declined in the first quarter, prompting downgrades from analysts Thursday. Moody's Investors Service then reduced its outlook on Deutsche Telekom's ``Baa1'' long-term credit rating to ``negative'' from ``stable.''
Deutsche Telekom shares traded at as high as 104.90 euros in March 2000, valuing the company at about 317 billion euros. The company's market value is now about 50 billion euros.
Cuts
Chief Financial Officer Karl-Gerhard Eick said Tuesday the company is ``on track'' to cut capital spending by about 10 percent to 9 billion euros this year and shareholders will vote Tuesday on the board's proposal to slash last year's dividend by 40 percent.
The company also may discuss plans to reduce its 260,000 employees by 22,000 over the next three years to lower costs. The cuts, which will save about 500 million euros, will mainly affect the T-Com fixed-line unit. Germany's ver.di labor union, which represents 120,000 workers, said earlier this month that the company planned to eliminate 30,000 jobs.
``It would surely help, but they won't be able to reduce staff quickly enough for it to make an impact,'' Vossenberg said.
Shareholders will also vote on the board's proposal to boost its compensation for 2001 by 90 percent. The SdK small shareholders group said it filed a motion against routine approval of the board's actions in the past year.
The group says the compensation package should be much lower, especially since the board is also proposing a dividend cut. Deutsche Telekom last month said it would propose management board compensation of 17.4 million euros in 2001 after paying out 9.2 million euros the year earlier.
``We'd appreciate if the payment to the management and the share price showed some synchronicity, and its just the opposite in this case,'' said Union Investment's Drees. `` If I were Ron Sommer, I'd say I wouldn't accept my stock-options package after that poor performance because the owners of our shares suffered so much.''

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