Deutsche Telekom moves closer to majority ownership of T-Mobile U.S.

Reuters reports that Germany's Deutsche Telekom hiked its stake in T-Mobile U.S. today through a stock swap with SoftBank Group valued at $7 billion. The latter is a Japanese conglomerate led by Masayoshi Son and in 2013 the company purchased 78% of Sprint for $22.2 billion after a fierce battle with Dish Network. As part of the deal announced on Tuesday, Soft Bank will receive cash and will become the second-largest stockholder in Deutsche Telekom with a 4.5% stake.

With the stock swap arrangement, 225 million new Deutsche Telekom shares, valued at 20 euros or $23.69 USD each (12% above their current market value), will be sent to SoftBank in exchange for 45 million T-Mobile U.S. shares.

Deutsche Telekom is also selling its T-Mobile Netherlands unit and will take $2.4 billion from that transaction to buy 20 million more T-Mobile shares from SoftBank. After all of the transactions, Deutsche Telekom will hike its stake in U.S. T-Mobile by 65 million shares or 5.3 percentage points to 48.4%; the German firm's CEO Tim Hoettges seeks to gain control over T-Mobile U.S. which accounts for three-fifths of its overall sales and is Deutsche Telekom's most profitable unit.

T-Mobile U.S. has risen over the last few years from being last among the four major carriers in the states to number two thanks to its early lead in 5G services. After all the dust settles, SoftBank will own 3.3% of T-Mobile U.S. The company is following the lead of its founder, Masayoshi Son by moving away from telecommunications to focus on investing.

While SoftBank has agreed not to sell any of its Deutsche Telekom shares until 2024, SoftBank's chief operating officer, Marcel Claure says, "I'm a big believer that Deutsche Telekom stock has material upside.

Deutsche Telekom's Hoettges says, "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." Because the deal triggers certain options held by the German telecom firm, the latter paid only $109 for the 65 million shares of T-Mobile U.S. it purchased. That's a huge savings from the $135 that the stock is trading for in the open market.

The executive said that Deutsche Telekom can take its stake in T-Mobile U.S. over the 50% line by either exercising more options to buy the stock or by not participating in the $60 billion of stock buybacks that the U.S. carrier is planning to initiate over the next few years. The German telecom company is heavily leveraged which is why it hasn't rushed to exercise the options that would give it control of T-Mobile U.S.

Thanks to the transactions that were announced today, Deutsche Telekom now has a bit more financial freedom and can afford to speed up the process of becoming a majority owner of T-Mobile U.S. New Street Research, a company that performs analysis of the telecommunications industry for investors, said in a statement that "This is a solid, but somewhat expected move by DT, and we would expect to see them exercise their remaining options in due course to guarantee the majority stake."

T-Mobile U.S. closed on its $26 billion purchase of Sprint last year. Forced to jump through hoops by U.S. regulatory agencies like the FCC and the DOJ in order to get the deal done, the transaction's main focus was for T-Mobile U.S. to acquire Sprint's huge hoard of 2.5GHz mid-band spectrum which gave the former the airwaves needed to create its 5G triple layer cake. The combination of low-band, mid-band, and high-band 5G signals has given the carrier a lead in the quality and quantity of its 5G coverage throughout the states.