SoftBank to take chunk of Deutsche Telekom through share swap

Japan-based technology and communications behemoth SoftBank Group has entered into a strategic partnership and equity share swap agreement with Deutsche Telekom, under which SoftBank’s more-than-300 portfolio companies would gain access to an additional 240 million Deutsche Telekom customers across Europe and the United States.

That would provide them with the ability to scale quickly and at a low cost, SoftBank said, with Deutsche Telekom set to benefit from an increase in average revenue per user, as well as a reduction in churn.

Under the equity share swap agreement, Deutsche Telekom will exercise a portion of its call options that were granted by SoftBank in connection with their June 2020 agreement.

Deutsche Telekom would acquire around 45 million T-Mobile US shares from SoftBank in exchange for issuing 225 million new Deutsche Telekom shares to SoftBank from its authorised capital.

In a subsequent step, Deutsche Telekom was planning to exercise call options to acquire another 20 million T-Mobile US shares from SoftBank, by reinvesting $2.4bn of expected disposal proceeds from the announced sale of T-Mobile Netherlands.

As a result of the transactions, SoftBank would become a 4.5% shareholder in Deutsche Telekom and retain a 3.3% equity stake in T-Mobile US, which could increase to 6.9% through true-up shares, if the T-Mobile US stock price was to hit certain milestones.

“This is a landmark transaction that is a true win-win-win for our portfolio companies, SoftBank and Deutsche Telekom,” said SoftBank Group executive vice-president and chief operating officer Marcelo Claure.

“The long-term strategic partnership will create incredible opportunities for our portfolio companies to turbocharge their growth with access to approximately 300 million customers across Japan, Europe and the US in total.”

Claure said the transaction would diversify the company’s telecoms exposure.

The Nikkei 225-listed company said the transaction would diversify its telecoms exposure across Japan, Europe and the US, with a 41% ownership of SoftBank Corp in Japan, 4.5% of Deutsche Telekom, and 3.3% of T-Mobile US.

SoftBank said it would have access to a total of just under 300 million customers globally, including 55 million from SoftBank Corp, 95 million from Deutsche Telekom, and 140 million from T-Mobile US.

The transaction was described as “financially compelling”, with SoftBank exchanging T-Mobile US shares underlying primarily fixed price options with no upside, for stock in Deutsche Telekom, which SoftBank said it believed to have “significant” long-term upside beyond the agreed reference price of €20.

SoftBank would become the second-largest private shareholder with intended board representation.

In addition, it would retain “meaningful exposure” to T-Mobile US through shares underlying primarily floating options and, potentially, true-up shares.

SoftBank said it expected “significant” ongoing equity value creation at T-Mobile Us, as it maintained its 5G leadership and unlocked synergies from the merger with Sprint.

The company said it would be able to use Deutsche Telekom and T-Mobile US stock as collateral for financing and hedging purposes.

“We are delighted to welcome SoftBank as a new key investor and strategic partner for Deutsche Telekom and can’t wait to get to work on the value creation opportunities from this cooperation for both SoftBank and Deutsche Telekom,” said Deutsche Telekom chief executive officer Timotheus Höttges.