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The Mercury News

Posted on Mon, Jul. 15, 2002

Sun setting on Deutsche Telekom's Sommer?

 

 

FRANKFURT (Reuters) - Deutsche Telekom's charismatic Chief Executive Ron Sommer, battling to cling on to his job, is a gifted mathematician who revolutionised share ownership in Germany.

Renowned for a smooth sales pitch that persuaded millions of stock-shy consumers to take a punt on Germany's biggest company, Sommer has been resisting pressure from the government to quit after a near 90 percent drop in the stock erased 265 billion euros ($260 billion) of shareholder value in two years.

After seven years at the helm of Europe's biggest telecoms operator, which is 43 percent government owned, the company's powerful supervisory board was set to vote on Sommer's future on Tuesday.

If he is ousted, Sommer, the Israeli-born son of a Russian Jewish mother and German emigre father, will have been at least in part a victim of the German election campaign.

Sommer officially stands accused of an inability to address Deutsche Telekom's heavy debt burden. But behind the scenes, Chancellor Gerhard Schroeder's ruling Social Democrats are trying to woo three million small, angry Deutsche Telekom investors ahead of elections in September.

Sommer is one of a number of telecoms bosses blamed for over-ambitious expansion strategies that have left balance sheets stretched across the industry.

Sommer's case is less colourful than that of Spain's Juan Villalonga, the former head of Telefonica. He was ousted in 2000 in a row over sex, boardroom greed and the loss of friends in high places -- namely Prime Minister Jose Maria Aznar.

With the self-assurance of a visionary convinced he need only ride out a bear market, Sommer brushed off enraged small shareholders, who clamoured at annual meetings: ``Herr Sommer, what have you done with my money?''

Despite rumours of a new strategy in the works, few expected the 53-year-old cosmopolitan, who speaks German with a soft Viennese accent, fluent French and English, to concede that his global ambitions no longer corresponded to market reality.

Sommer's mother fled the Soviet Union in 1941 after the Nazi invasion and met his father in what was later to become Israel. Sommer, who was born in Haifa in 1949, grew up and was educated in Vienna after his mother married an Austrian in the 1950s.

Sommer got his maths doctorate at 21 and famously secured his first, high-profile job sitting next to German entrepreneur Heinz Nixdorf on a U.S. internal flight. The founder of Germany's Nixdorf computer firm promptly hired him and he was running Nixdorf France by the age of 27.

On return to the company's headquarters in Paderborn, he took responsibility for the company's overseas business before moving to Sony Corp's German unit in 1980. He took the reins of the Japanese giant's U.S. subsidiary in 1991.

He was heading Sony's European business when the surprise resignation of Helmut Ricke left a vacancy at the helm of lumbering, state monopoly Deutsche Telekom in 1994. Thousands of staff enjoyed civil service status in a group saddled with huge debts from upgrading eastern Germany's creaking network.

Sommer was the only candidate the supervisory board took seriously. He was a man of the world -- smart, suave and slick. He was appointed in March 1995 with a mandate to cut the fat, introduce a service culture, transform the bloated company into a profitable, European champion and bring it to market.

It was not easy. Initially, he was hailed as a saviour, then accused of ``exploiting the nation'' after introducing new prices in 1996. But despite 100,000 job cuts, Sommer has long enjoyed union backing. Staff were offered voluntary redundancy or not replaced after retirement.

However, in 1998 the finance ministry, backed by a small band of Deutsche Telekom executives, seemed close to a coup, blaming over-optimistic profit targets and underperforming shares. Talk of his demise resurfaced in 2000 and 2001.

But when Deutsche Telekom stock came to market in three tranches, millions of Germans raided savings to brave the market for the first time in their lives.

Consumers who first bought into the Deutsche Telekom story in 1996 paid the equivalent of 14.32 euros per share. Three years later the price was 39.50 euros and in 2000, another tranche was sold for 63.50 euros. The stock touched 105 euros in March 2000. Now it stands at around 12 euros.

Sommer's ambition is the stuff of legend. When Italian peer Telecom Italia was hounded by Olivetti in 1999, he saw his chance to put a global vision to the test.

Sommer charged to the rescue of Telecom Italia's CEO Franco Bernabe. In his haste, he failed to mention his plans to long-time ally Michel Bon, the CEO of France Telecom, with whom he had already built a U.S. and Italian joint venture.

Bon was unsurprisingly enraged to read about the escapade in the press. As the Telecom Italia deal crumbled, Sommer and Bon traded insults and both joint ventures were disbanded.

Sommer switched tack, sweeping on to British turf and snapping up One2One, the smallest of four cellphone companies. It was the height of a bull market and he dug deep. Billions of euros more were spent on new-generation mobile licences.

Last year, he secured a costly but long sought-for entrance into the world's biggest telecoms market. U.S. cellphone group VoiceStream cost around $31 billion in stock, debt and cash, shareholders grumbled again and Deutsche Telekom shares sagged.

Sommer has little patience for delegation and is renowned for an authoritarian approach. Management purges were launched at One2One and Europe's largest Internet service provider, T-Online, after the subsidiary was listed in 2000.

Sommer says his company's share price -- the so-called ``people's share'' has plunged to a low of 8.14 euros, rousing public calls for his dismissal -- defies comprehension and ``can only be explained with psychological mechanisms.''

Some say it is a travesty that the government, which is trailing the opposition Conservatives ahead of the elections, should help depose him. ``This is just unacceptable,'' said one source close to Deutsche Telekom's advisers.

But others believe he should withdraw gracefully. ``He is an arrogant man,'' says one financier who has had dealings with Sommer. ``He's very, very bright...and extremely self-assured.

``He absolutely believes he has been unzipped by the market, that there's nothing wrong with the vision. He thinks that with hindsight, he paid the wrong prices -- but these were prices the market was demanding at the time. Unfortunately for him, that isn't the way the market sees it.''

 

 

 


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