The fortunes of T-Mobile Us Inc (NASDAQ: TMUS) expect to change as its largest investor plans to acquire a balance 8% stake in it from SoftBank Group Corp (OTCMKTS: SFTBF)

SoftBank to gain $12 billion

According to the recent reports in Bloomberg and Handelsblatt, Deutsche Telekom AG (OTCMKTS: DTEGF) plans to become a significant shareholder by exercising its option to clinch an 8% stake of SoftBank in T-Mobile. The transaction would result in a windfall gain of $12 billion to Japan-based SoftBank.

Improves appeal of T-Mobile to investors

The sale transaction of SoftBank would improve the appeal of T-Mobile to the investors. T-Mobile stock appreciated 215% in the past few years and just shy of reaching $170 billion. Its peers, Verizon has climbed by just 15%, whereas AT&T declined by 24% in the same period. T-Mobile’s growth is on the backdrop of its merger with Sprint and significant change after that. 

Buyback of shares

In March 2021, T-Mobile’s CEO, Mike Sievert, said the company would buy back its shares from 2023 and offer $60 billion to investors in return. It will use the cash accruals from its merger with Sprint in 2020. The move is to pay higher stock prices to the shareholders than dividends. However, Mike’s plan may not happen because Deutsche Telekom requires funds to acquire a balance stake from SoftBank.

Among the telecoms in Europe, Deutsche Telekom sits on a significant debt pile. The company already spends massive amounts on 5G rollouts. And with the latest initiative, Deutsche Telekom needs money to pay SoftBank. However, Tim Hoettges, CEO, feels that T-Mobile’s price would go up soon, and then it is wise to buy back shares at cheaper valuations. 

It means Deutsche Telekom could buy some of the T-Mobile shares at a lower price. However, Deutsche Telekom needs to pay the current market price to SoftBank for more than half of the shares. 

Deutsche Telekom needs to pay $120 per share if it exercises the option to buy an 8% stake. It is at a discount of $135 to the closing price of T-Mobile on Tuesday. However, insurance and pension funds that own shares in Deutsche Telekom prefer regular dividends. It mandates Mike to divert more funds for rewards so that Deutsche Telekom can proceed with increasing its stake.