Telekom rises ahead of Sommer vote

Sommer: Blamed for Deutsche Telekom's huge debt and plunging stock price

BONN, Germany (CNN) -- Deutsche Telekom shares rebounded on Tuesday as speculation grew that embattled chief executive Ron Sommer may hold on to his job.

Europe's largest telecom group was up 5.5 percent to 10.87 euros in early Frankfurt trading ahead of a critical meeting of Deutsche Telekom's supervisory board called to decide his fate later on Tuesday.

Deutsche Telekom (FDTE) plunged 15 percent on Monday after reports that the German government, which owns 43 percent of Deutsche Telekom, wanted long-time group executive Gerd Tenzer to take over from Sommer.

Shares in the group, which peaked at about $104 two years ago, have fallen 90 percent since Sommer went on a spending spree that left the former German monopoly with debts of 67 billion euros.

The ouster of Sommer was expected to restore investors' confidence in Deutsche Telekom and reverse the slide in its stock.

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The government sees Tenzer as a moderate choice who could win the support of the 20-person supervisory board, half of which represent Germany's powerful trade unions that are opposed to an outsider getting the top job.

But many analysts view Tenzer -- a 58-year-old group manager with the company -- as a weak replacement, and point to Monday's decline in the group's shares price, following reports of his possible selection, as evidence that he may not be the right choice.

"There are those who are against Tenzer on both the shareholder and employee sides," a source close to the supervisor board to Reuters.

Employees of Deutsche Telekom began demonstrating their support for Sommer outside the company's Bonn headquarters early on Tuesday. Last week, about 20,000 employees joined the trade unions in signing a letter of support for Sommer.

The supervisory board began meeting at around 1300 GMT.

Sommer's hold on power has also become a political issue ahead of German national elections in September. Chancellor Gerhard Schroeder's rivals are supporting millions of small investors who own stock in Deutsche Telekom.

However, the deputy head of Deutsche Telekom's supervisory board has warned the government not to meddle in the company's business unless it was prepared to renationalise it.

"Frankly it's one big political bunfight at the moment," Barclays analyst Arnab Roychowdhury told CNN.

"I suspect if Sommer stays it will be with the government's blessing and after he says he will do what it takes to reduce debt and get the share price up."

If the 52-year-old Sommer loses his job he will join other disgraced European telecoms chiefs, sacked for over-ambitious expansion strategies.

Jean-Marie Messier was deposed last month as chief executive of the world's second-largest media group Vivendi Universal (PEX). Peter Bonfield lost his job at Britain's BT Group (BT) and Paul Smits recently left KPN Telecom of the Netherlands.

Sommer -- who took over in 1995, one year before the group was floated -- has been under mounting pressure to slash debt, return Deutsche Telekom to profitability, and halt the plunge in the company's stock.

"German elections will take place in September, and it seems that the weakness in DT's share price could become a political issue," investment bank Merrill Lynch said in a research note.

"In our view, a change in management might facilitate a more aggressive approach to DT's debt reduction programme."