Deutsche Telekom, which owns 66 percent of the fourth-largest U.S. carrier, has doubts that Iliad will be able to improve the U.S. business since the French startup has no track record in the country, a source close to the German company's management said.
Under the deal structure proposed by Iliad, Deutsche Telekom would have to keep a stake in the combined company.
Iliad is currently in talks with several U.S. banks to help it finance a possible improved bid for T-Mobile US alongside existing lenders HSBC and BNP Paribas, the people familiar with the situation said, after a $33 per share offer for 56.6 percent of T-Mobile US was rejected by Deutsche Telekom.
Chief Financial Officer Thomas Reynaud said Iliad's key leverage ratio would not surpass 4.5 times net debt to earnings before interest, tax, depreciation and amortization (EBITDA). He also said that Iliad would limit any capital increase to fund the T-Mobile bid to 2 billion euros ($2.57 billion).
Iliad is also seeking to team up with private equity funds including KKR to raise about $5-6.5 billion, the sources, who could not be named because the talks are private, said.
T-Mobile US, Iliad and KKR declined to comment. Deutsche Telekom could not be reached immediately for comment.
Iliad's management team has now finished road shows to meet U.S. investors and is waiting to hear back from potential investors, the sources said.
Depending on how positive the feedback is from private equity investors, the French firm could be able to table an improved bid in the second week of October, two of the sources said.
Iliad could offer between $35 and $40 per share for a stake in T-Mobile of between 60 percent and 90 percent, depending on the appetite of private equity funds and lenders for the deal, two other sources said.
But Iliad, whose shares have fallen around 25 percent since it embarked on a bid for T-Mobile in late July, cannot afford a lengthy pursuit of T-Mobile if Deutsche Telekom is not willing to engage.
POSSIBLE CONSTRAINTS
In a note this week after it hosted a dinner with T-Mobile US's investor relations team, brokerage firm Jefferies said criteria for potential partners included a spectrum line in the United States and a U.S. customers base, on top of favorable financial terms.
Such a constraint would rule out Iliad as an acquirer, although this could also be part of Deutsche Telekom's tactics to get a better deal from Iliad, said some of the sources who are close to Iliad.
Deutsche Telekom would still prefer to exit the U.S market but is under no pressure to sell T-Mobile US at the moment or to start negotiations with Iliad, said the source close the German company's management, who did not rule out that Deutsche Telekom might still be active in the United States in two to three years.
Deutsche Telekom expressed scepticism last month about estimates by Iliad's boss Xavier Niel that the merger would result in $10 billion in benefits from cost cuts.
That pledge has also been met with scepticism by some analysts who say T-Mobile is already run in quite a lean manner.
Earlier this month, Iliad's Reynaud said the French group had not yet won access to a so-called "data room", which is usually set up to give bidders access to information that is not public about a company it wants to buy.
Even without access to detailed information on T-Mobile, Iliad believes it can generate $2 billion in savings per year, or 7 percent of T-Mobile's estimated cost base, by running the operator in a more cost efficient way.
Deutsche Telekom, which makes about a third of its sales and a fifth of core profits in the United States, has tried to sell T-Mobile twice since late 2011 because it sees it as too small to compete with market leaders Verizon Communications Inc and AT&T.
The German company spent about a year negotiating with Sprint Corp., the third-place U.S. mobile carrier, over a potential sale, only to see it withdraw in early August over worries U.S. regulators would bar the deal on competition grounds.
(Additional reporting by Pamela Barbaglia, Freya Berry in London, Leila Abboud in Paris and Harro Ten Wolde in Frankfurt and Liana Baker and Marina Lopes in New York)
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