With the SoftBank deal, Deutsche Telekom increases its bet on the US market.
Deutsche Telekom has agreed a multipronged deal with SoftBank that deepens its bet on the lucrative US market and will lead to the Japanese group taking a roughly $5bn stake in Germany’s dominant telecoms operator.
The arrangement was unveiled as Deutsche Telekom also announced the sale of its T-Mobile Netherlands unit to private equity groups Warburg Pincus and Apax in a deal valuing that business at €5.1bn.
The transactions highlight how Deutsche Telekom is focusing on the US market where the merger of T-Mobile US, in which it is already the biggest shareholder, with SoftBank-backed Sprint last year has helped it take on Verizon and AT&T.
The new deal restructures a previous arrangement struck between the German and Japanese groups following that tie-up, allowing SoftBank to unload a large portion of fixed price options it holds in T-Mobile US, which are capped at a price well below the level where the business trades, in exchange for Deutsche Telekom shares.
Deutsche Telekom plans to issue 225m in new shares to SoftBank at a price of €20, roughly a 12 per cent premium to the level they sat before the start of trading on Tuesday. This will give SoftBank a 4.5 per cent stake, making it Deutsche Telekom’s third-biggest shareholder behind the German government and BlackRock.
Deutsche Telekom also said it would support a SoftBank proposal at its next annual meeting to elect Marcelo Claure, a senior executive at the Japanese group and the former chief executive of Sprint, to its supervisory board. SoftBank has agreed to a lock-up on its shares in Deutsche Telekom until December 2024.
In exchange, the German group will increase its control of T-Mobile US by acquiring 45m shares owned by SoftBank. It also said it planned to purchase a further 20m shares for $2.4bn, funded by part of the proceeds from the sale of its Dutch unit.
“This agreement furthers Deutsche Telekom’s strategic objective of increasing its ownership stake in T-Mobile US to more than 50 per cent in order to maintain long-term control and consolidation of T-Mobile US,” the German group said. The deal will lift its stake in T-Mobile US by 5 per cent to 48.4 per cent.
Jefferies analyst Ulrich Rathe said increasing the T-Mobile US stake “had been stated management strategy”, but that “using Deutsche Telekom shares for that purpose comes as a surprise”.
Shares in Deutsche Telekom rose 0.3 per cent to €17.25 just before midday on Tuesday in Frankfurt.
SoftBank’s position in T-Mobile US is held through a combination of floating and fixed priced options, which are capped at $101 per share and mean the Japanese group is unable to benefit as the US group has soared well past that level. By swapping into Deutsche Telekom shares, SoftBank has the chance to capture future gains in the German group instead.
After the deals are completed, SoftBank will be left with a 3.3 per cent stake in T-Mobile US, comprised of 7m fixed priced options and 34m floating price ones. It also has the chance to increase its holding to 6.9 per cent if the T-Mobile US stock stays above $150 per share for 45 days.
The complex deal is SoftBank’s most aggressive foray into corporate Germany, where it is best known for its start-up investment in online car reseller Auto1 and its controversial backing of the now-defunct and scandal-ridden payments company Wirecard.
It also highlights how the Japanese group remains enmeshed in the telecoms business, even as it tries to pivot to become an investment company focused on start-ups and public market stake building. Alongside stakes in Deutsche Telekom and T-Mobile US, SoftBank also owns 41 per cent of its Japanese telecoms subsidiary.
SoftBank shares rose 9.8 per cent to ¥6,943 in Tokyo trading on Tuesday, but remain 35 per cent below their high from earlier this year.
Kirk Boodry, a tech analyst who publishes research on Smartkarma, said the deal gave SoftBank better options on its equity stakes though with lower upfront cash proceeds.
He added: “That doesn’t justify a 10 per cent move in SoftBank shares today but with cash coming in markets may see this as a precursor to a buyback announcement. Alternatively, there has been such a lack of good news this quarter that any positive developments may be enough to generate some excitement.”
The sale of Deutsche Telekom’s Dutch mobile unit comes after the group sold its Romanian business to Orange and its Dutch towers unit to Spain’s Cellnex over the past year.
It values T-Mobile Netherlands at €5.1bn, or 8.7 times its €582m in earnings before interest, tax depreciation and amortisation in the year to June. Warburg Pincus and Apax will each own 50 per cent of the newly separated Dutch company.
At Warburg Pincus, the deal is being led by René Obermann, who was chief executive of Deutsche Telekom from 2006 to 2013.
Apax has previously bought stakes in Danish communications group TDC and Orange Switzerland while Warburg Pincus has previously invested in German fibre group Inexio and Dutch cable company Ziggo.