Issuer: Deutsche Telekom
Size: e2.3 billion mandatory convertible
Bookrunners: Goldman Sachs, Morgan Stanley
Deutsche Telekom's mandatory convertible looked like a great idea. The company had long been criticized for not tackling its e64 billion debt pile sufficiently quickly or effectively. The convertible was a chance of doing something positive and on a large scale.
Unfortunately, while the e2.3 billion deal, the largest-ever mandatory convertible in Europe and the US, was a big step in the right direction in fixing the balance sheet, it also had a deleterious impact on the share price.
The case for a mandatory deal
The deal was marketed as a way of issuing equity while limiting both the share price impact and dilution. But on the launch date, Deutsche Telekom lost more in market capitalization - e5.3 billion - than it raised through the convertible. Its market cap has subsequently fallen at least another e6 billion.
The bookrunners ran for cover. Goldman Sachs declined to be interviewed because of sensitivities surrounding the deal, and Morgan Stanley could not provide someone to comment before press time. Fear about being associated with bad press about the deal spread even beyond the arranging banks.