All Stock Merger: T-Mobile US, Sprint set to combine operations

T-Mobile US, Inc., a publicly listed subsidiary of Deutsche Telekom AG, and Sprint Corp., a publicly listed subsidiary of Softbank Group Corp., together with Deutsche Telekom and Softbank, have entered into a legally binding business combination agreement to merge the two companies in an all-stock transaction at an exchange ratio of one T-Mobile US share for 9.75 shares of Sprint’s outstanding common stock without an additional cash component.

This will add approx. 426 million T-Mobile US shares to the 865 million already issued, bringing the total to approx. 1.29 billion shares (based on fully diluted shares).

The completion of the transaction is subject to a number of closing conditions, including, among others, the receipt of required antitrust and regulatory approvals (inter alia Department of Justice, FCC, CFIUS) and approvals by the shareholders of T-Mobile US and Sprint.

Upon completion of the transaction, it is expected that Deutsche Telekom, Softbank and the public will hold approximately 42 percent, 27 percent and 31 percent of the combined company’s common stock respectively. In addition, Softbank and Deutsche Telekom will enter into a voting agreement securing Deutsche Telekom a proxy over all of Softbank’s shares in the combined company.

Following the merger, Deutsche Telekom will have the right to appoint 9 out of 14 members of the Board of Directors of T-Mobile US, of whom a minimum of two must be independent. Timotheus Höttges, CEO of Deutsche Telekom, will become Chairman of the Board of T-Mobile US, and John Legere, currently a Board Member and Chief Executive Officer of T-Mobile US, will continue as a Board Member and Chief Executive Officer of T-Mobile US.

The shareholder structure and a clear governance will allow Deutsche Telekom to continue to fully consolidate T-Mobile US.

Cost and capex synergies with a net present value of approximately 43 billion U.S. dollars (net of integration costs) are expected for the then larger T-Mobile US as a result of the merger, with projected integration costs of around 15 billion U.S. dollars. Starting 3 years after closing of the transaction, synergies are expected to exceed integration costs for the first time.

The transaction will not affect Deutsche Telekom's outlook on the group for the current financial year 2018. Deutsche Telekom's statement on dividend policy for the financial year 2018 also remains unchanged.

Net leverage (defined as net debt to adjusted EBITDA) for Deutsche Telekom is expected to exceed the target corridor of 2.0–2.5x following the transaction. However, strong free cash flow generation of T-Mobile US over the coming years is expected to result in strong deleveraging bringing the ratio back to the target corridor in 2021.