Bruised by the collapse in value of its shares in Didi, Alibaba and other China-related investments, struggling SoftBank has just been handed a new lifeline by German telecoms giant Deutsche Telekom, which will fork over billions in cash and a 4.5% stake in DT, a package valued at roughly $7 billion.
In a separate deal announced Monday, DT sold its Dutch business (named T-Mobile Netherlands) to a consortium of private equity buyers - the latest in a string of major deals in Europe - for $6.1 billion, giving the heavily leveraged German telecoms giant some badly needed cash.
For SoftBank, the DT has always been a potential life raft, since CEO Tim Hoettges has made his desire to acquire full control of T-Mobile US - a $170 billion business that would give the German firm control of one of the major US networks - well known. Once completed, Monday's deal will bring DT's ownership of T-Mobile to within a hair's breadth of 50%, increasing it by 5.3% to 48.4%.
The complicated transaction involves DT exercising call options granted to it by SoftBank back in June 2020, while also reinvesting the cash from its sale of T-Mobile Netherlands. SoftBank Group will receive 225MM new Deutsche Telekom shares and some cash in exchange for Deutsche Telekom getting a total of 65MM T-Mobile US shares. The options will enable DT to lock in an average price of $109, below last week's closing price of $136. T-Mobile's shares have been the best-performing of the major carriers in the US over the past five years. At the price of $23.70 a share, SoftBank is paying a 12% premium to DT's last closing price for shares it has agreed to hold until at least 2024.
Marcel Claure, SoftBank's lead executive on the deal, explained that dumping practically all of its "residual" T-Mobile stake will allow SoftBank to trade an investment whose value was largely capped (by the options it had granted to DT) in exchange for a stake in a fast-growing telecoms giant with a footprint in 12 European countries and a growing footprint in the US.
Claure will also gain a seat on DT's board after the firm's next annual meeting.
"I'm a big believer that Deutsche Telekom stock has material upside," Claure told a news briefing. He also highlighted the possibility of a collaboration in the area of digital payments, which SoftBank has a major footprint.
In a statement, DT CEO Hoettges said he was "welcoming" SoftBank as a "strategic partner".
"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 shares surged in more than 9% in premarket trading on Tuesday, while shares of DT edged slightly higher.
At least one analyst weighing in on the deal noted that forking over shares was a novel strategy for DT as it seeks to gain control of T-Mobile US.
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”.
After these last few months, the deal was a badly needed win for SoftBank and its shareholders. The best thing now for the Japanese telco conglomerate with a VC arm attached would be to focus on closing its next big deal: selling chip maker Arm to Nvidia. Masahiko Ishino, an analyst at Tokai Tokyo Research Institute, said "the best thing for [SoftBank's] stock would be for the planned sale of Arm to Nvidia to make progress".