BERLIN/TOKYO - Deutsche Telekom has struck a share-swap deal with Softbank Group to increase its stake in U.S. unit T-Mobile and sold its Dutch unit in a major restructuring that strengthens the German group's transatlantic focus.
As a result of the two deals announced on Tuesday, Deutsche Telekom will raise its stake in T-Mobile US by 5.3% to 48.4%, bringing CEO Tim Hoettges closer to his goal of securing direct control over the $170 billion U.S. telecoms operator.
Softbank will in return receive cash and a 4.5% stake in Deutsche Telekom, establishing a direct shareholding relationship after the Japanese group sold its U.S. Sprint unit to T-Mobile in a deal that closed in early 2020.
The latest transactions seek to lock down that deal by bringing Deutsche Telekom within touching distance of majority ownership over T-Mobile US - which accounts for three-fifths of group sales and is its most profitable unit.
For Softbank founder Masayoshi Son, the share swap deal substitutes a residual stake in the U.S. business for a strategic holding in Deutsche Telekom, which is also present in a dozen European countries.
"This is a very attractive transaction for Deutsche Telekom and its shareholders to further benefit from the value creation potential in T-Mobile US and beyond," Hoettges said.
"But we are not just increasing our stake in T-Mobile US – we are welcoming SoftBank as a new key investor and strategic partner for Deutsche Telekom."
Softbank's Marcel Claure said: "This is a landmark transaction that is a true win-win-win for our portfolio companies, SoftBank and Deutsche Telekom."
Shares in Softbank, which is the world's biggest tech investor through its Vision Fund portfolio, rallied by 10% on the news in Tokyo, while Deutsche Telekom was up 2.4% in pre-market trading in Frankfurt.
Separately, Deutsche Telekom sold its Dutch unit T-Mobile Netherlands to a consortium of private equity houses Apax and Warburg Pincus for 5.1 billion euros ($6.1 billion).
Deutsche Telekom acquired control of the Dutch business from Sweden's Tele2 in 2018 but never considered the unit, which ranked a distant third behind KPN and Vodafone Ziggo, as a core asset.
Deutsche Telekom will invest some of its 3.8 billion euros in proceeds from the Dutch deal to raise its stake in T-Mobile US. Sweden's Tele2, which had retained a 25% stake in T-Mobile Netherlands, also sold out.
Following the Sprint deal, Deutsche Telekom had under a shareholder agreement held the right to the votes associated with Softbank's residual stake in T-Mobile US. It had also struck option deals with Softbank locking in the right to raise its stake in T-Mobile US.
Still, with Deutsche Telekom carrying a debt load of nearly 130 billion euros, the extent of its existing leverage meant it was always going to be hard to pay cash to gain majority control over T-Mobile US.
Under the share swap deal, Deutsche Telekom will issue 225 million new shares valued at 20 euros - 12% above their current market price - to Softbank.
In return, Softbank will sell around 45 million T-Mobile US shares to Deutsche Telekom at an average price of $118 per share. That compares to last week's closing price for T-Mobile US of $136.
In addition, Deutsche Telekom will buy around 20 million shares in T-Mobile US from Softbank with the proceeds from the Dutch sale - adding to the cash windfall for the Japanese investor.
Goldman Sachs and Morgan Stanley acted as financial advisers to Deutsche Telekom on the transaction. Cravath, Swaine & Moore LLP and Freshfields Bruckhaus Deringer acted as legal advisers.