Raises your stake in T-Mobile at a good price, but reaching the majority you crave would be expensive
Deutsche Telekom has found a smart route to a dubious destination. It is going to increase its stake in the US subsidiary T-Mobile by 5%, for 6,000 million euros. Doing so by exchanging shares with SoftBank saves you having to give it all in cash. More important is whether you should increase your participation in the first place.
SoftBank will own 4.5% of Telekom, so it will be its largest investor after the German government. And Telekom will have 48% of T-Mobile, one step away from the majority that Tim Hoettges, its CEO, wants. The good news for Telekom shareholders is that, in general, they obtain T-Mobile shares at a discount of almost 20% compared to the current price, thanks to the favorable purchase options on 8% of SoftBank in the operator from the US, inheritance of its purchase of Sprint from SoftBank in 2020. In addition, Hoettges pays the majority in shares, despite having obtained 3.8 billion from the sale of the Dutch unit, T-Mobile Netherlands, to Apax and Warburg Pincus.
Still, SoftBank’s 10% equity gain versus Telekom’s slight gain suggests that Son investors are happier to have eliminated most of their derivatives commitments. Meanwhile, Telekom shareholders have tended to price T-Mobile at a discount to what it should be worth. Assuming that Hoettges’ European empire is valued online with Vodafone, it would be worth 94 billion. If you discount the 281,000 the group is worth, which according to Citi includes debt, pension plans and minority interests, there are 187,000 million for T-Mobile. Deducting the net debt from this, you get a value of equity of 130,000 million, compared to its real market value of 140,000 million.
To reach the 50% threshold, Hoettges needs to buy 2.3 billion worth of shares at current prices, and he has practically exhausted his portfolio of juicy options. Although it has found a way to execute its latest trade at a good discount, its luster will fade if its investors continue to undercut the value of US incursions.