Activist hedge fund Elliott Management has built a sizeable stake in Deutsche Telekom, creating a further impediment to the German telecoms company's efforts to merge with its American subsidiary T-Mobile US, according to people familiar with the matter. The New York-based fund wanted Deutsche Telekom to scrap merger talks with T-Mobile US and instead focus on other ways to boost shareholder value, such as stock buybacks, one of the people said.

The Financial Times reported in April that Deutsche Telekom was considering a merger with T-Mobile US, in which it already owns a 53 per cent stake. Such a transaction would rank as the biggest public market deal of all time. The arrival of Wall Street's most formidable activist investor at Deutsche Telekom amid the merger talks is likely to add a further hurdle to a deal that was already seen as uncertain.

Any deal would have a thorny path to approval, requiring buy-in from powerful German trade unions and political leaders in Berlin and Washington. For Deutsche Telekom's chief executive Tim Höttges, securing a full merger with T-Mobile US presents an opportunity to solidify his company's presence in its largest market, which generated more than two-thirds of its €44.2bn adjusted earnings last year.

Elliott's investment in Deutsche Telekom comes as the hedge fund is placing other big bets across Europe, including a stake in French industrial gas group Air Liquide.