T-Mobile US acquiring Sprint: doing 5G-based FMC after all

T-Mobile US (DT 62%) acquires Sprint (SoftBank 83%)

• $26b in shares (no cash out), EV $59b: 9.75 Sprint for 1 T-Mobile US (1 Sprint = 0.10256 T-Mobile US = $6.62), EV combination $146b

• DT to own 42% (voting rights 69% incl. perpetual proxy from SoftBank; SoftBank has certain veto & info rights), SoftBank 27%, to be consolidated by DT

• synergies NPV $43b (net of $15b integration costs) from network integration & build-out (incl. 5G), sales & marketing, store fittings, advertising, customer support, repairs & logistics, efficiencies in internal IT & billing; run-rate savings >$6b from 2024 (assuming effective from YE 2018; excl. IFRS 16 effects)

• to close 19H1, subject to DoJ, FCC, security authorities; no break-up fees

• John Legere CEO, Mike Sievert COO & President, Timotheus Höttges Chair, DT to appoint 9 (incl. 2 indie) of 14 Board members, SoftBank 4 (incl. 2 indie)

• outlook & dividend DT 2018 unchanged, positive effect on EPS after 3 yr, leverage to exceed 2.0-2.5x (2.9 YE 2019), expects max. 1 notch downgrade (current Moody's Baa1/neg., S&P BBB/stable, Fitch BBB+/stable), return to 2.0-2.5 (i.e. 2.5) by 2021 (1.8 in 3-4 yr)

• T-Mobile US to redeem all shareholder loans from DT (to reduce directly by $8b to $6.6b)

• T-Mobile US to pursue Un-carrier strategy; "... will be able to roll out 5G technology more quickly and better than either T-Mobile US or Sprint would have been able to do alone. To do this, the intention is to focus on convergence products combining fixed and mobile communication offerings, a portfolio with which Deutsche Telekom is already very successful in Europe"

• to invest $40b in first 3 years; to employ more staff than the two previous companies put together (from call center capacity in rural areas, network build-out, maintenance, new stores)