Which is why the dramatic sale of a stake in one of Europe’s biggest companies could be subtitled ““The Seduction of Barbara Schmidt.’’ As a business, Deutsche Telekom doesn’t have much to commend it. The state-owned telephone and cable-TV monopoly is notorious for its high costs, unfriendly service and monthslong delays just to install a line. Its work force is bloated, and its debt load tops $67 billion. But as the German government prepares to sell a 20 percent stake to the public on Nov. 18, it hopes investors like the Schmidts will overlook Telekom’s spotty record and focus instead on easy money.
Far more than phone calls are at stake. Germany may be the world’s third largest economy, but its stock market is minuscule. Relatively few companies are publicly traded and, with a handful of banks and insurance companies controlling most of the shares, trading is light. Small companies have to rely on bank loans because issuing stock is all but impossible. ““The only place where companies like ours could be properly valued is America,’’ says Peer Schatz of Qiagen, a biotech-equipment company that didn’t even try to sell stock in Germany before listing on NASDAQ last June. But by floating a $10 billion piece of Telekom, the government hopes to create a new craving for stocks–and, in the process, revitalize the nation’s economy by helping channel capital to dynamic young companies that can replace the jobs that giants like Siemens and Volkswagen are shedding.
But wait. This isn’t exactly a German version of last year’s high-flying IPOs for the likes of Netscape. The siren song of big bucks may lure U.S. investors by the millions. But the adage that high risks can bring high returns doesn’t play well in Cologne and Munich. Only one German household in 20 owns stocks, versus one in five in the United States. In fact, the amount stashed in low-interest savings passbooks far exceeds the total value of all German shares combined. ““There is no equity culture in Germany,’’ says Rolf-Ernst Breuer, soon to become the chairman of Deutsche Bank. That’s why the government is pulling out all stops to make Telekom’s IPO a roaring–and riskless–success. If Barbara Schmidt decides to buy in, she’ll have a tough time losing money. ““Nothing can go wrong with the Telekom deal,’’ says Stephan-GOtz Richter, a Washington consultant to German companies. Why? Because Europe’s biggest IPO ever is wired to succeed.
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If the stock issue is oversubscribed, mom-and-pop investors will be allotted most of the initial shares. But Telekom’s huge size means that international mutual funds will want to own the stock, and they’ll have to buy it on the Stock Exchange. That will push up the price of Mom and Pop’s shares.
There’s a hefty dividend, guaranteed for two years. U.S. companies rarely pay out dividends soon after going public, saving their cash to finance growth. But Telekom shareholders will get about 6 percent, more than they’d earn on German-government bonds. Even if the stock goes nowhere, they’ll come out ahead.
Don’t forget the freebies. Germans who preregistered for shares get a 2 percent discount. Those who hold their stock for three years get an extra share free for every 10 they own. Shareholders will get discounts on their phone bills, too.
For the truly timid, there’s even insurance. If buyers sign over their dividends, Dresdner Bank promises to buy their shares at the initial offering price if the market should drop.
With inducements like this, who cares about Telekom’s track record and the competitors banging on the door? Spurred by a TV ad campaign, more than 3 million families have signed up for the stock. ““We’re not going to turn millions of Germans into shareholders overnight, but at least they’re starting to think about owning shares,’’ says RUdiger von Rosen of the German Stock Institute. But they’d best think carefully, however well the Telekom offering turns out. As Harvard economist Andrei Shleifer points out, German law makes it hard for unhappy investors to challenge management or even to get complete information. ““Being a shareholder of an individual company is a pretty crazy idea in a place like Germany, because you have no rights,’’ Shleifer says. Until that changes, even a fail-safe IPO won’t persuade Germans to own stocks.
