Germans feeling fleeced
Huge suit over Telekom sharesMUNICH -- When Deutsche Telekom went public in 1996, they dubbed it the "people's stock." Today, 16,000 disgruntled investors and about 900 lawyers have made it the centerpiece of the biggest shareholder lawsuit in German history.
When Telekom was spun off of the German Post's telecommunications division in 1995, creating in effect a fully owned "subsidiary" of the German government, its sluggish operations symbolized everything that was wrong with Germany's socialist market economy.
Captive customers sometimes faced monthlong waits for a service visit or weeks of calling from pay phones after moving to a new apartment. Then Telekom went public -- and went wide.
By means of a ubiquitous ad campaign featuring TV police detective Manfred Krug, the fiscally conservative Germans were supposed to be transformed into a nation of savvy market players by getting them to invest in the "people's stock."
Tens of thousands answered the call and bought T-shares, as they were branded. In three issues, the final one in June 2000, the government sold off the lion's share of its 100% stake in Telekom to the general public.
Soon afterward, the bad news hit. Without a whisper of any plans to enter the U.S. mobile phone market, Telekom suddenly bought up the American company VoiceStream -- and drastically overpaid for it. Then it turned out that Telekom's extensive real estate holdings were actually worth hundreds of millions less than the company had estimated.
The T-shares' price spiraled downward to a sixth of its original value. It has remained there, with little change, since 2002.
Now shareholders are demanding that they be paid the difference between the original T-share price and its current value, a total of about 80 million euros ($127 million).
The trial began last Monday with a slew of news coverage, almost all of which included snippets of an ad featuring Krug standing in the pouring rain under an umbrella and talking about making an investment in the future.
The high-profile T-share campaign identified Krug intimately with Telekom, and he has not worked in film or television since the stock tanked. Last year, in a magazine interview, he apologized "from the bottom of his heart" to everyone who had bought T-shares on his recommendation.
But the implications of this case for the German psyche are wider than one soured celebrity reputation.
Telekom was basically a government agency that was sold off to the people.
Many of those who bought T-shares believed that the government wanted to help them improve their retirement incomes by encouraging them to invest in the privatization scheme. The idea that they could have been bamboozled by the authorities, in whom they have much more trust than say, the average American, is producing shock and outrage.
The plaintiffs lost one round in the trial almost immediately. Their case hinges on whether Telekom lured investors by providing deceptive information, or leaving out crucial facts, in its promotion pamphlet for the flotation. Last week, the judges in Frankfurt ruled that, "at first glance," the value of Telekom's real estate assets described in the pamphlet did not seem out of line with what could have reasonably been known at the time.
So the next major question is whether then-Telekom CEO Ron Sommer deliberately edited out plans to acquire VoiceStream from the pamphlet -- or whether there were no such plans when the flotation took place.
Telekom already has paid out a $120 million settlement because of the VoiceStream takeover -- to its American shareholders. A settlement in the current case would be, at the very least, thorny to negotiate; all 900 lawyers would have to get together and agree on a sum for their clients, because class-action suits are not provided for under German law.
Sommer is scheduled to testify before the court this week, probably to another wave of news coverage.