Changes in the composition of the Group and other transactions
In the first nine months of 2024, Deutsche Telekom conducted the following transaction with a material impact on the composition of the Group.
Acquisition of Ka’ena in the United States
On March 9, 2023, T‑Mobile US entered into a Merger and Unit Purchase Agreement for the acquisition of 100 % of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile, for a maximum purchase price of USD 1.35 billion to be paid out 39 % in cash and 61 % in shares of T‑Mobile US common stock. On March 13, 2024, T‑Mobile US entered into an agreement amending the mechanics of payment, which will result in a nominal increase in the percentage of cash compared to shares of T‑Mobile US common stock to be paid out as part of the total purchase price. The purchase price is variable dependent upon specified performance indicators of Ka’ena Corporation and consists of an upfront payment at deal close, subject to certain agreed-upon adjustments, and a variable earnout, payable on August 1, 2026. The amount of the upfront payment is expected to be finalized by the end of 2024.
The transaction was consummated on May 1, 2024. All necessary regulatory approvals had been duly granted and all other closing conditions met. Ka’ena is included in Deutsche Telekom’s consolidated financial statements as of May 1, 2024. Kaʼena is a provider of prepaid wireless services in the United States under its main brands Ultra Mobile and Mint Mobile, and also offers a selection of mobile devices. The acquisition strengthens the position of T‑Mobile US as the leading prepaid wireless carrier by way of brand diversification and expansion of the sales presence, including the acquisition of prepaid customer relationships.
The acquisition meets the conditions for a business combination in accordance with IFRS 3. The purchase price allocation and the measurement of assets, liabilities, and the consideration transferred at the acquisition date had not been finalized as of September 30, 2024.
At closing of the transaction, T‑Mobile US made an upfront payment of around USD 1.0 billion (EUR 0.9 billion) (taking into account working capital adjustments and other agreed purchase price adjustments), comprising a cash component of around USD 0.4 billion (EUR 0.4 billion) and around 3 million ordinary shares of T‑Mobile US with a total value of around USD 0.5 billion (EUR 0.5 billion), determined on the basis of the closing share price as of April 30, 2024. Part of the upfront payment made as of the acquisition date was used to settle the pre-existing wholesale partner relationships with Ka’ena, and as such is not part of the fair value of the consideration transferred.
Based on the upfront payment made, an additional up to USD 0.4 billion (EUR 0.4 billion) in cash and ordinary shares in T‑Mobile US shall become payable on August 1, 2026 if Ka’ena achieves specified performance indicators. This includes payments for future services of certain sellers for T‑Mobile US in the period after the acquisition, and for the substitution of share-based payment for certain Ka’ena employees.
The preliminary fair value of the consideration transferred amounts to USD 1.2 billion (EUR 1.1 billion) as of the acquisition date, and breaks down as follows:
millions of € |
|
|
Fair value at the acquisition date |
|---|---|
Fair value of the T‑Mobile US ordinary shares issued |
488 |
Fair value of the cash component paid on the acquisition date |
383 |
Fair value of the contingent consideration |
169 |
Fair value of the other consideration |
24 |
= Consideration transferred |
1,064 |
The fair value of the contingent consideration was determined on the basis of the discounted cash flow method using the Monte Carlo simulation for the probability of occurrence of different outcomes. This measurement is based on significant inputs that are not observable on the market and, as such, is a Level 3 measurement. The key assumptions comprise Ka’ena’s forecast performance indicators, primarily revenue, marketing expenses, and customer metrics, their likelihood of occurrence, and the discount rate.
For the fair value of the contingent and other consideration, an other non-current financial liability of USD 0.2 billion (EUR 0.2 billion) was recognized as of the acquisition date.
The preliminary fair values of Ka’ena’s acquired assets and assumed liabilities are presented in the following table:
millions of € |
|
|
Fair value at the acquisition date |
|---|---|
Assets |
|
Current assets |
71 |
Cash and cash equivalents |
22 |
Trade receivables |
31 |
Other financial assets |
10 |
Other assets |
4 |
Inventories |
3 |
Non-current assets |
1,423 |
Goodwill |
682 |
Other intangible assets |
685 |
Of which: customer base |
504 |
Of which: brands |
65 |
Of which: other |
116 |
Right-of-use assets |
2 |
Deferred tax assets |
8 |
Other assets |
46 |
Assets |
1,494 |
Liabilities and shareholders’ equity |
|
Current liabilities |
260 |
Lease liabilities |
1 |
Trade and other payables |
28 |
Other provisions |
9 |
Contract liabilities |
220 |
Other liabilities |
2 |
Non-current liabilities |
170 |
Lease liabilities |
2 |
Other provisions |
67 |
Deferred tax liabilities |
101 |
Liabilities |
430 |
The preliminary goodwill is calculated as follows:
millions of € |
|
|
Fair value at the acquisition date |
|---|---|
Consideration transferred |
1,064 |
– Fair value of assets acquired |
812 |
+ Fair value of liabilities assumed |
430 |
= Goodwill |
682 |
The preliminary goodwill comprises the expected growth in Ka’ena brands, which is to be generated through the combined business activities, Ka’ena’s workforce, and intangible assets that do not qualify for separate recognition. It is expected that the preliminarily recognized goodwill will be deductible from income tax in the amount of EUR 0.1 billion.
The customer base was measured using the multi-period excess earnings method. Under this method, the fair value of the customer base is calculated by determining the present value of earnings after tax attributable to existing customers. The customer base is amortized over an estimated average remaining useful life of 6 years. The brands were measured using the relief-from-royalty method. Under this method, the value of the brand is calculated by making an assumption about which royalty rate would be notionally payable if the company did not own the relevant asset. The brands are amortized over an estimated average remaining useful life of 8 years.
No material transaction-related costs were incurred in connection with the acquisition from a Group perspective. The inclusion of Ka’ena Corporation in the consolidated financial statements has no material impact on Deutsche Telekom’s results of operations.
The following transactions will change the composition of the Deutsche Telekom Group in the future:
Agreement on the acquisition of Lumos in the United States
On April 24, 2024, T‑Mobile US entered into an agreement with the investment fund EQT on the acquisition of the fiber-to-the-home platform Lumos. The transaction is subject to regulatory approvals as well as other customary closing conditions and is expected to close in early 2025. Upon closing, T‑Mobile US is expected to invest approximately USD 1.0 billion (EUR 0.9 billion) in the company to acquire a 50 % equity stake and all existing fiber customers, with the funds invested by T‑Mobile US being used by Lumos for future fiber builds. In addition, T‑Mobile US is expected to contribute an additional amount of approximately USD 0.5 billion (EUR 0.4 billion) between 2027 and 2028. Following closing of the transaction, the investment is expected to be included in the consolidated financial statements using the equity method.
Agreement on the acquisition of UScellular in the United States
On May 24, 2024, T‑Mobile US entered into an agreement with the United States Cellular Corporation (UScellular), Telephone and Data Systems, Inc., and USCC Wireless Holdings, LLC, under which T‑Mobile US will acquire, among other things, substantially all wireless activities of UScellular and specific spectrum licenses for a total purchase price of around USD 4.4 billion (EUR 3.9 billion). The purchase price is to be paid in cash and by way of the assumption of debt of up to USD 2.0 billion (EUR 1.8 billion) under an offer of exchange to certain debtors of UScellular before the closing of the transaction. To the extent that debtors do not participate in the exchange, their bonds will continue to be liabilities of UScellular, and the cash component of the purchase price will increase accordingly. The transaction is subject to regulatory approvals as well as other customary closing conditions and is expected to close in mid-2025. After closing, the acquired activities and assets are expected to be included in the consolidated financial statements as a business combination in accordance with IFRS 3. Following closing of the transaction, UScellular will continue to own the remaining spectrum and the cell towers, and T‑Mobile US will conclude a 15-year framework license agreement for the lease of at least 2,100 cell towers. Furthermore, the terms of existing lease agreements for around 600 cell towers that T‑Mobile US already leases from UScellular will be extended by another 15 years after closing of the transaction.
Agreement on the acquisition of Metronet in the United States
On July 18, 2024, T‑Mobile US entered into an agreement with KKR & Co. Inc. to acquire the fiber-to-the-home platform Metronet Holdings, LLC and certain of its affiliates (Metronet). The transaction is subject to regulatory approvals as well as other customary closing conditions and is expected to close in 2025. Upon closing, T‑Mobile US is expected to invest approximately USD 4.9 billion (EUR 4.4 billion) in the joint venture to acquire a 50 % equity stake and all existing residential fiber customers, as well as to fund the joint venture. Following closing of the transaction, the investment is expected to be included in the consolidated financial statements using the equity method.