Elliott urges Deutsche Telekom to drop T-Mobile merger plan, sources say

FRANKFURT, Sept 3 (Reuters) - Activist investor Elliott Investment Management has built a stake in Deutsche Telekom and is urging the German telecoms group to abandon a potential merger with its U.S. unit T-Mobile, two people familiar with the matter said.

Elliott, an activist investor known for high-profile campaigns at some of the world's biggest groups, including BP, opposes the T-Mobile deal.

It would prefer alternative options to unlock shareholder value, including larger share buybacks, according to one of the people, who spoke on condition of anonymity because the matter was private.

Reuters could not determine the size of the stake.

Under German law, shareholdings above 3% must be disclosed publicly.

Deutsche Telekom shares rose as much as 2.3% on Thursday.

The group has been exploring a merger with T-Mobile that would create a transatlantic telecoms giant, Reuters reported in April. Deutsche Telekom holds a stake of around 54% in T-Mobile.

Deutsche Telekom and Elliott were not immediately available for comment. T-Mobile declined a Reuters request for comment on Wednesday. Bloomberg News first reported the news on Wednesday.

MORE GENERAL DEBATE OVER VALUE OF MERGER

In August, the telecoms group boosted its 2026 share buyback programme by €3 billion ($3.48 billion) to up to €5 billion, citing low valuation of its shares relative to their historical levels.

"Whilst upsizing this commitment would naturally be financially accretive, it would not address the strategic overhangs plaguing sentiment," JPMorgan analysts noted, pointing to debate over the value of the T-Mobile merger and U.S. headwinds, including fears of disruption from satellite competition and a perceived weak fibre footprint.

The potential merger represents a "highly complex transaction" that most investors remain opposed to, they added, while activist pressure could compel Deutsche Telekom to clarify the strategic logic behind the deal or formally rule out a transaction.

"We, too, are sceptical about a full merger between Deutsche Telekom and T-Mobile," said Matthias Lützen, fund manager at Union Investment, a shareholder of Deutsche Telekom, who viewed it as a "clear negative factor" for the stock prices of both companies.

"Elliott’s entry and the recently expanded share buyback programme make a merger less likely. In the long term, this should mean that Deutsche Telekom continues its well-known focus on share buybacks. At current valuation levels, expanding the share buybacks also seems very sensible," he told Reuters.

Elliott's push for buybacks has also been a concern in the activist investor's engagement at RWE, Germany's largest power producer, following investor concerns over the way the utility spends its money.

($1 = 0.8619 euros)

(Reporting by Emanuele Berro in Gdansk, Christoph Steitz in Frankfurt, Anousha Sakoui in London and Hakan Ersen in Berlin, editing by Milla Nissi-Prussak and Barbara Lewis)