Deutsche Telekom has announced the sale of its T-Mobile Netherlands business to funds managed by a pair of private equity big guns, quashing rumours of a big telco takeover.

A group of funds managed by Apax Partners and Warburg Pincus will pay €5.1 billion for the Dutch mobile operation, which is majority owned by Deutsche Telekom.

The German incumbent has been working on the sale of the business for several months – it announced it would be the subject of a strategic review at its Capital Markets Day in May – and Apax and Warburg Pincus featured on a reported list of interested parties from the PE world a couple of months ago. However, it seemed there could be a more interesting outcome, when earlier this week Indian press reports claimed Reliance Industries was preparing a $5.7 billion bid. The Hindustan Times said the Reliance Jio parent was sounding out lenders to finance the deal and predicted an announcement within a month.

Either the Indian telco giant was unable to get its finances in order quickly enough, or the report was pure speculation; the more likely private equity deal is now official.

That €5.1 billion price tag will give Deutsche Telekom €3.8 billion in net cash proceeds; there’s also a share of the spoils going to 25% shareholder Tele2 and other debt items to factor in. The deal includes the repayment of Deutsche Telekom’s shareholder loans to T-Mobile Netherlands.

When the deal closes, Deutsche Telekom will deconsolidate T-Mobile Netherlands, which will shave around €2 billion per year from its top line. In the 12 months to the end of June, T-Mobile NL generated €2.01 billion in revenues and €582 million in adjusted EBITDA AL. That puts the value of the deal at approximately 8.7x adjusted EBITDA AL, which is pretty healthy.

All this assumes the deal clears the required regulatory hurdles, although given that it’s a PE sale and there is no impact on the shape of the market, there’s no reason to foresee any problems on that score.

Deutsche Telekom and Tele2 reshaped the Dutch mobile market when they merged their operations there just under three years ago. That deal saw third-placed T-Mobile swallow up market minnow Tele2, reducing the number of mobile network operators to three from four. The European Commission, famed for its insistence on retaining four-player markets across Europe, gave the deal the go-ahead on the grounds that it would be unlikely to trigger price increases for consumers, since the merged entity would still be the market’s smallest player with a share of around 25%.

The merged telco has grown significantly since then though. Deutsche Telekom puts its market share at 42%, as of last year, making it the biggest operator in the Netherlands. Its growth was backed by a fixed market play, which saw it build on the 2016 acquisition of fixed-line, broadband and TV provider Vodafone Thuis (that deal was a regulatory requirement linked to the Vodafone-Ziggo merger) and a deal with Open Dutch Fiber to roll out FTTH. The enlarged T-Mobile NL also boosted its mobile base by buying MVNO Simpel last year, which served around 1 million customers on the T-Mobile network. Further, Deutsche Telekom notes that customer growth has also translated to the balance sheet with adjusted EBITDA AL recording a CAGR of 15% between 2018 and 2020, adjusted for the sale of the towers division at the start of this year.

“Through our dedicated value creation plan and T-Mobile NL’s unique challenger mind-set, we have successfully transformed T-Mobile NL into the fastest growing MNO in Europe,” said Thorsten Langheim, Board member for USA and Group Development Deutsche Telekom AG, and responsible for T-Mobile NL. “In Apax and Warburg Pincus we are convinced we have found the perfect partners for T-Mobile NL to take the company to the next level of growth and continue the FMC Challenger Strategy.”

You might well wonder though, why Deutsche Telekom was so keen to sell an asset that is apparently performing so well. At least part of the answer to that question became clear when the telco simultaneously announced a share swap with Softbank that will enable it to increase its stake in T-Mobile US, couple with the revelation that it plans to use the proceeds from the T-Mobile Netherlands sale to buy yet more shares in the US mobile operator. There’s something of a high-level business reshaping going on at Deutsche Telekom.

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