Group organization, strategy, and management
With regard to our Group organization, strategy, and management, please refer to the explanations in the combined management report in the 2020 Annual Report. The following changes and/or additions were recorded from the Group’s point of view:
Strategic measures to secure long-term control of T‑Mobile US. On September 6, 2021, Deutsche Telekom followed up on its announcement from the Capital Markets Day in May 2021 with strategic action to increase its stake in T‑Mobile US in a move that secures the existing control over the U.S. subsidiary and full consolidation in the long term. Deutsche Telekom also confirms the medium-term outlook for the Group communicated at the Capital Markets Day 2021, including its goal of increasing adjusted earnings per share to more than EUR 1.75 per share by 2024.
Increase in Deutsche Telekom’s stake in T‑Mobile US in a deal positioning SoftBank as a new shareholder and strategic partner. In the deal signed between Deutsche Telekom and SoftBank on September 6, 2021, Deutsche Telekom acquired a total of around 45.4 million T‑Mobile US shares from SoftBank. To this end Deutsche Telekom exercised, on September 23, 2021, a portion of the stock options it had received from SoftBank in June 2020 to buy shares in T‑Mobile US. SoftBank received in return 225 million new shares in Deutsche Telekom AG from the 2017 Authorized Capital. The capital increase against a non-cash contribution amounted to EUR 576 million. The capital increase of Deutsche Telekom AG was carried out with effect upon entry into the commercial register on September 28, 2021. As a result of this transaction, SoftBank has become a shareholder in Deutsche Telekom AG with around 4.5 % of the outstanding shares. In connection with the exercise of the existing stock options, the weighted average price for the total around 45.4 million T‑Mobile US shares acquired as part of this share swap calculates to around USD 118 per T‑Mobile US share. For the 225 million Deutsche Telekom shares received by SoftBank, which are subject to a lock-up until 2024, the two companies agreed a value of EUR 20 per share. This capital increase against a non-cash contribution brings the number of outstanding shares of Deutsche Telekom AG up from 4,761 million shares to 4,986 million shares. Upon its completion, the transaction raised Deutsche Telekom’s stake in T‑Mobile US by 3.6 percentage points to 46.8 %. The percentage of T‑Mobile US shares for which Deutsche Telekom can exercise voting rights based on an agreement concluded with SoftBank in connection with the acquisition of Sprint amounted to 52.0 % as of September 30, 2021. The aim is to support SoftBank in their efforts to take a seat on Deutsche Telekom AG’s Supervisory Board in the future.
Deutsche Telekom is also weighing plans to invest up to USD 2.4 billion of the proceeds from the agreed sale of T‑Mobile Netherlands to exercise further stock options to purchase around 20 million T‑Mobile US shares. This will further increase its stake in T‑Mobile US by approximately 1.6 percentage points, bringing its total stake to around 48.4 %. Deutsche Telekom and SoftBank have also agreed a new strategic partnership that will position Deutsche Telekom as a major European partner in the SoftBank ecosystem.
Agreed sale of T‑Mobile Netherlands. In the second deal also signed on September 6, 2021, Deutsche Telekom and Tele2 agreed to sell our subsidiary T‑Mobile Netherlands to WP/AP Telecom Holdings IV, a private equity consortium advised by Apax Partners and Warburg Pincus. The transaction brings to a close the review of strategic options regarding T‑Mobile Netherlands announced at the Capital Markets Day 2021. The preliminary sale price is based on an enterprise value of EUR 5.1 billion. The cash inflow – based on our shareholding of 75 % – is expected to be around EUR 3.8 billion. Deutsche Telekom is weighing plans to invest a portion of the cash proceeds from the sale to further increase its stake in T‑Mobile US. The transaction is subject to approval by the authorities as well as other closing conditions. The assets and liabilities of T‑Mobile Netherlands as of September 30, 2021 are reported in our consolidated statement of financial position as “held for sale.” The closing of the transaction is expected to be completed at the latest by the first quarter of 2022.
Acquisition of Shentel. On May 28, 2021, a purchase agreement was signed between T‑Mobile US and Shenandoah Personal Communications Company (Shentel) – a local provider of mobile network products in certain regions of some U.S. states – for the acquisition of assets and liabilities directly associated with the wireless telecommunications operation of Shentel. The transaction was consummated on July 1, 2021 after obtaining the necessary approvals from the regulatory authorities and satisfying the other closing conditions. A preliminary purchase price has been set of USD 1.9 billion (EUR 1.6 billion).
Sale of Telekom Romania Communications. On November 6, 2020, OTE concluded an agreement with Orange Romania concerning the sale of its 54 % stake in Telekom Romania Communications (TKR), which operates the Romanian fixed-network business, to Orange Romania. The transaction was approved by the authorities and then consummated on September 30, 2021. The purchase price is EUR 296 million. The net deconsolidation gain/loss resulting from the sale is immaterial from a Group perspective. TKR’s 30 % stake in Telekom Romania Mobile Communications was acquired by OTE on September 9, 2021 as previously agreed for a purchase price of EUR 59 million.
Combination of the cell tower business in the Netherlands and creation of an infrastructure fund. On January 21, 2021, Deutsche Telekom, Cellnex Telecom (Cellnex), the newly established independently managed investment company Digital Infrastructure Vehicle II (DIV), and others signed an agreement to merge Deutsche Telekom’s and Cellnex’s respective Dutch subsidiaries for passive mobile infrastructure into Cellnex Netherlands (Cellnex NL). Following approval of the deal by the national competition authority, the Dutch cell tower company T‑Mobile Infra was sold to DIV effective June 1, 2021 and subsequently contributed into Cellnex NL. Deutsche Telekom received a cash inflow of EUR 0.4 billion. The gain on disposal of EUR 0.3 billion breaks down as follows: EUR 0.2 billion was included in other operating income as of June 30, 2021 and EUR 0.1 billion will be recognized pro rata in subsequent periods through the sale-and-leaseback transactions described below. Immediately prior to the sale, T‑Mobile Infra also paid Deutsche Telekom AG a dividend of EUR 0.3 billion. As of September 30, 2021, Deutsche Telekom indirectly held a 37.65 % stake in the “new” Cellnex NL through the investment in DIV and includes the investment with a carrying amount of EUR 0.4 billion in the consolidated financial statements using the equity method. T‑Mobile Netherlands will continue to have full access to the contributed passive mobile infrastructure by means of a long-term agreement at normal market conditions, primarily on the lease of the corresponding infrastructure. The lease component included in the agreement fulfills the conditions of a sale-and-leaseback transaction. Right-of-use assets in the amount of EUR 0.3 billion and lease liabilities in the amount of EUR 0.4 billion were recognized in this context as of June 1, 2021.
Reassignment of the Internet of Things (IoT) growth area. Effective January 1, 2021, Deutsche Telekom reassigned the responsibility for business and profit and loss for Deutsche Telekom IoT GmbH from the Systems Solutions operating segment to the B2B unit in the Germany operating segment. The Group subsidiary is responsible for the IoT business of Deutsche Telekom. This reassignment puts us in a position to serve the IoT market more quickly and thus to strengthen Deutsche Telekom’s position on this growth market. Prior-year comparatives in both of the segments affected (development of operations, customer development, headcount development, and order entry) were adjusted retrospectively.
Reassignment of the Austrian cell tower business. As of January 1, 2021, Deutsche Telekom reassigned its Austrian cell tower business from the Europe operating segment to GD Towers in the Group Development operating segment to enhance efficiency in the management of the cell tower business. In addition, GD Towers will increase its efforts to expand third-party business, increase profitability, and develop growth areas. Prior-year comparatives in both of the segments affected have not been adjusted.
Reorganization of DT IT. As of January 1, 2021, Deutsche Telekom IT (DT IT) Russia, DT IT Slovakia, and DT IT Hungary were reassigned from the Germany operating segment to the Group Headquarters & Group Services segment. Prior-year comparatives in both of the segments affected have not been adjusted.
Act responsibly. We fulfill our responsibility to society by systematically aligning our core business processes with the principle of sustainability. We have expanded our existing climate strategy to include a new Group program: Our aim with #GreenMagenta is to make a meaningful contribution toward protecting the climate and conserving resources. Carbon neutrality for our own emissions, often referred to as net zero, is to be achieved by 2025 at the latest. The emissions involved from the production stage to operation by the customer are also to be reduced to net zero by 2040 – ten years earlier than originally planned.
Capital Markets Day 2021. In May 2021, we presented our medium-term strategy and the financial outlook at our Capital Markets Day. The dividend will continue to track the development in adjusted earnings per share. This figure is set to rise from the 2020 level of EUR 1.20 to more than EUR 1.75 by 2024. Subject to approval by the relevant bodies, 40 to 60 % of adjusted earnings per share is to be paid out. The dividend floor introduced in November 2019 of EUR 0.60 per share still applies. Over the coming years we are also set to purchase shares in T‑Mobile US and thus secure ourselves the majority shareholding (> 50 %) in our U.S. subsidiary in the medium term. An effect of this will be to delay hitting our target range for relative debt of 2.25x to 2.75x by one year, to 2024.
Upgraded rating outlook for Deutsche Telekom AG. In June 2021 the rating agency Moody’s upgraded the rating outlook for Deutsche Telekom AG from Baa1/negative to Baa1/stable.