DT soars on VoiceStream sale hope

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

BONN, Germany (CNN) -- Deutsche Telekom's stock soared on Wednesday amid hopes Europe's biggest phone company may sell assets to reduce debt after Chief Executive Ron Sommer resigned.

Its stock, which has fallen by about 50 percent this year, rose 5.7 percent to 11.54 euros in early Frankfurt trading on Wednesday.

The supervisory board of indebted Deutsche Telekom (FDTE) vowed late on Tuesday to launch a radical cost-cutting strategy to reduce its 67 billion euro ($68 billion) debt pile and steer it back to profitability.

Sommer's decision to resign on Tuesday -- following a special meeting of the board in Bonn -- came after he failed to move quickly enough to cut the company's debt, which he built up through a failed strategy to expand beyond Deutsche Telekom's domestic market.

Deutsche Telekom posted six consecutive quarterly losses, partly because of Sommer's decision to buy struggling U.S. mobile phone operator VoiceStream for $35 billion. The company's debt was a key reason why its stock has plunged 90 percent from a March 2000 peak.

MORE STORIES • Debate over Sommer intensifies  • VoiceStream in U.S. merger talks

VoiceStream, the sixth-biggest U.S. mobile phone operator, should be the first asset the company seeks to sell, analysts said. The business is yet to make a profit and is bleeding cash.

Deutsche Telekom is in talks to merge VoiceStream with AT&T Wireless Services in a deal valued at $10 billion, the Wall Street Journal reported.

Helmet Sihler, 72, who replaces Sommer as chief executive for the next six months, said the U.S. business had a market share of around seven percent and was gaining customers. But "that does not exclude a solution that will bring VoiceStream even further and more quickly into profitability."

Analysts at Bear Stearns wrote in a note to investors that "it would be preferable for VoiceStream to be either disposed or merged with an existing operator to create a more viable U.S. entity."

Sommer, who steered the company for more than seven years, said he decided to step down to avoid hurting the group any further.

"When a chief executive cannot rely on the full confidence of the supervisory board, resignation is the only responsible step left open," Sommer said. "I want to play my part in avoiding any further damage to the company."

The German government, Deutsche Telekom's biggest shareholder with a 43 percent holding, had been pushing for Sommer's resignation to win the support of 3 million small shareholders in September's national election.

But management board member Gerd Tenzer, the government's preferred candidate, only becomes deputy CEO. The management changes should see the group through to the election.

With his resignation, Sommer joins 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.