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Why SoftBank Might Want to Sell Its T-Mobile Stake

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May. 18 2020, Published 11:28 a.m. ET

SoftBank (OTCMKTS:SFTBY) has opened discussions with Deutsche Telekom (OTCMKTS:DTEGY) about selling some of its shares in T-Mobile (NYSE:TMUS), according to a report from the Wall Street Journal.

Deutsche Telekom is a German telecom group whose operations are mainly in Europe. The company is the largest shareholder in T-Mobile with a stake of 44%. SoftBank owns about 25% of T-Mobile.

Notably, SoftBank came to own a piece of T-Mobile after its US wireless subsidiary Sprint merged with T-Mobile. In order to clear regulatory hurdles, T-Mobile and Sprint agreed to sell some of their assets to Dish Network (NASDAQ:DISH).

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SoftBank’s T-Mobile stake valued at $30 billion

T-Mobile shares have risen this year. The stock got a boost from strong first-quarter earnings. T-Mobile delivered revenue of $11.1 billion and a profit of $951 million or $1.10 per share in the first quarter. For SoftBank, the losses across its investments like WeWork and Uber Technologies (NYSE:UBER) led it to record a loss for the financial year, which ended in March.

Trading at $97.32 at the closing on May 15, T-Mobile shares have risen 24% for the year, which gives the company a market valuation of more than $120 billion. Therefore, SoftBank’s 25% stake carries a $30 billion valuation. At this point, we don’t know what portion of the T-Mobile stake SoftBank intends to sell.

SoftBank seeks to raise $41 billion

SoftBank has outlined a plan to raise $41 billion through asset sales. The plan might be the reason why the company is discussing selling some of its shares in T-Mobile.

In addition to T-Mobile, SoftBank is also a large shareholder in Alibaba—China’s top e-commerce company. Recently, SoftBank owned 25% of Alibaba’s shares. The shares are worth more than $136 billion at Alibaba’s current valuation of $546 billion.

As part of the fundraising program, SoftBank has entered into agreements to raise $11.5 billion using its Alibaba shares.

SoftBank has set out to raise cash to spend toward reducing its debt burden and financing stock repurchases. On stock repurchases, the company plans to repurchase up to $4.7 billion of its shares by March 2021.

However, SoftBank’s stake sales would also mean loosening its grip on great investments like T-Mobile and Alibaba. T-Mobile’s merger with Sprint has transformed it into the third-largest provider in the US wireless market. Meanwhile, Alibaba is big in e-commerce, cloud computing, and digital payments.

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