Deutsche Telekom and Tele2 have agreed to sell T-Mobile Netherlands to Apax Partners and Warburg Pincus. The quoted price of EUR 5.1 billion includes debt, giving the company's equity a value of just EUR 3.0 billion, or 5x EBITDA. Looking back, the company also spent EUR 1.25 billion acquisitions in recent years (Vodafone Thuis, Tele2, Simpel), likely paid with debt (loans from Deutsche Telekom). The deal brings no synergies, change in strategy or market consolidation. That means we can ask already, who will the private equity firms eventually sell T-Mobile to?
The most important news is that nothing changes. The management, FMC strategy and branding remain the same. This means relief for the rest of the market, after T-Mobile already helped out KPN and VodafoneZiggo by removing two price-fighters from the market (Tele2 and Simpel). A licensing deal to keep using the T-Mobile and Tele2 names for another ten years suggests that Deutsche Telekom is not in a hurry to make a bid for KPN (although you never know what may be in the fine print). DT also plans to decide on its remaining 12 percent stake in BT in the next 12 months, and then we might get a bit more on the German company's plans for consolidation.
Acquisition price includes shareholder loans and three takeovers
The quoted takeover price of EUR 5.1 billion is enterprise value, meaning both equity and net debt. Deutsche Telekom said at its Capital Markets Day in May that it was aiming for an enterprise value of EUR 6 billion (incl. EUR 2.1 billion debt), so it's clearly fallen short. Excluding debt, the Dutch company is valued at EUR 3 billion, equal to five times EBITDA AL over the past four quarters.
Deutsche Telekom will receive EUR 3.8 billion for its 75 percent stake in T-Mobile and paying off its shareholder loans to the company. It's spending EUR 2.0 billion of that to buy more shares in T-Mobile US.
Tele2 gets EUR 860 million for its 25 percent stake in T-Mobile NL. The company said it will pay out a special dividend with the proceeds of SEK 11 per share.
That leaves EUR 440 million, which we assume must be external debt. T-Mobile will need to reduce its net debt (EUR 2.08 billion as of end-June) ahead of the spectrum auction planned for next year. Our sources indicate that around 60 percent of the takeover amount may end up on T-Mobile's balance sheet (as happened with VodafoneZiggo). In short, the new owners will want to see dividends as well as value creation in the coming years.
Apax and Warburg are notably also owners of Inmarsat. This could help them find a smoother way out of the conflict over access to the 3.5 GHz band in the Netherlands for 5G.
So the price of EUR 5.1 billion appears higher than it may be in reality, as much of that is debt. Furthermore, T-Mobile has spent a significant amount on acquisitions in recent years. Tele2 Netherlands cost EUR 870 million, Vodafone Thuis an estimated EUR 90 million and Simpel EUR 293 million. That's another EUR 1.25 billion in total.
Strategy continues
As for T-Mobile's strategy, we're to assume that nothing changes. Management, targets, organisation, and brands are all the same. We note that AP and WP are investors, not telecom directors. The recent acquisitions and growth at T-Mobile - which gave Deutsche Telekom cause to call the company a 'crown jewel' - would not give any reason to change things. For the new owners, the attraction is in the dividend and expected increase in value, assuming T-Mobile keeps growing.
As this is just a change of ownership, with no synergies or scale advantages, regulatory approval should come quickly, before the end of the year. The deal furthermore does not support any other further consolidation, apart from an eventual DT bid for KPN as part of its strategy to create a pan-European, all-IP market leader.
This brings us back to the beginning: who would want to buy T-Mobile NL from AP and WP?
