Changes in the composition of the Group

Changes to the composition of the Group in the first quarter of 2020 were of no material significance for Deutsche Telekom’s interim consolidated financial statements.

The following transactions will change the composition of the Deutsche Telekom Group in future.

Business combination of T‑Mobile US and Sprint

Together with their respective majority shareholders Deutsche Telekom AG and Softbank K.K., T‑Mobile US and Sprint Corp. concluded a binding agreement on April 29, 2018 to combine their companies. On July 26, 2019 and on February 20, 2020, further conditions for the business combination were agreed. The transaction was consummated on April 1, 2020. Prior to this, the approvals required from the national and regional regulatory and antitrust authorities and courts in the United States had been obtained and additional closing conditions met. Most recently, on April 16, 2020, the business combination was approved by the California Public Utilities Commission (CPUC). As a consequence of the business combination, T‑Mobile US took over all shares in Sprint. Sprint is a U.S. telecommunications company which offers a comprehensive range of wireless and wireline communications products and services. The “new” T‑Mobile US will successfully drive forward its Un- strategy and step up the network build-out.

The business combination of T‑Mobile US and Sprint took the form of an all-stock transaction. For every 9.75 Sprint shares, the company’s shareholders received one new share in T‑Mobile US in exchange. Pursuant to the supplementary agreement dated February 20, 2020, Softbank agreed to surrender to T‑Mobile US immediately, for no additional consideration, an aggregate of 48,751,557 ordinary shares in T‑Mobile US, received in connection with this transaction, such that Softbank received one new share in T‑Mobile US for every 11.31 Sprint shares. This resulted in an effective exchange ratio of approximately 11.00 Sprint shares for one share in T‑Mobile US following the closing of the transaction. For the other Sprint shareholders, the exchange ratio remained unchanged at 9.75 Sprint shares in return for one ordinary share in T‑Mobile US. Taking into account these adjustments, a total of 373,396,310 ordinary shares in T‑Mobile US were issued to Sprint shareholders. Based on the T‑Mobile US closing share price as of March 31, 2020 of USD 83.90, the total value of the ordinary shares in T‑Mobile US provided in exchange for ordinary shares in Sprint amounted to USD 31.3 billion (EUR 28.6 billion). In addition, the consideration transferred also included the assumption and repayment of various of Sprint’s liabilities, the replacement of share-based compensation for certain Sprint employees for services provided prior to the business combination, and contingent consideration payable to Softbank. The latter resulted from the agreement concluded on February 20, 2020 that if the trailing 45-day volume-weighted average price of a T‑Mobile US ordinary share is equal to or greater than USD 150.00 at any time during the period commencing on April 1, 2022 and ending on December 31, 2025, then T‑Mobile US will issue to Softbank for no additional consideration 48,751,557 ordinary shares, i.e., the number of shares that Softbank transferred to T‑Mobile US in connection with the consummation of the transaction.

Since the transaction was consummated so close to the date of preparing the consolidated financial statements, it is not yet possible to disclose information on the fair values of the consideration transferred, assets acquired and liabilities assumed, non-controlling interests, or on the goodwill resulting from the transaction. The assets acquired in the business combination primarily comprised spectrum licenses, property, plant and equipment related to cell sites and network technology, inventories, right-of-use assets, and pension plan assets. The liabilities assumed mainly include trade payables, pension obligations, lease liabilities, and non-current financial liabilities.

Following the closing of the transaction, Deutsche Telekom and Softbank hold, indirectly or directly, approximately 43.6 percent and 24.7 percent, respectively, of the “new” T-Mobile US’ shares, with the free float accounting for around 31.7 percent. Due to a proxy agreement concluded with Softbank, and to the fact that individuals nominated by Deutsche Telekom hold the majority of the seats on the new company’s Board of Directors, T‑Mobile US continues to be included as a fully consolidated subsidiary in the consolidated financial statements.

Transaction-related costs totaling EUR 0.1 billion were incurred in the first quarter of 2020. These costs mainly comprised legal and consulting fees and are included under other operating expenses.

On July 26, 2019, T‑Mobile US, Deutsche Telekom, Sprint, Softbank, and the U.S. satellite TV operator DISH Network Corp. entered into an agreement, subject to specific conditions, with the U.S. Department of Justice, which will have a significant impact on the future structure of the new T‑Mobile US. Under this agreement, following the consummation of the business combination of T‑Mobile US and Sprint, Sprint’s business is to be sold as part of an asset deal to DISH Network for USD 1.4 billion, subject to a working capital adjustment. The transaction is expected to be completed by mid-2020, subject to customary contract closing conditions. The agreement also includes the sale of part of the 800 MHz spectrum held by Sprint to DISH for around USD 3.6 billion. The sale of the spectrum is subject to the approval by the regulatory authority, to be applied for three years following the closing of the business combination of T‑Mobile US and Sprint, and to additional closing conditions. For two additional years following the closing of the spectrum sale, T‑Mobile US will have the option to lease back, as needed, a portion of the spectrum.

For further information, please refer to the section “Group organization, strategy, and management” in the interim Group management report.

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