North America Secondary Equity Issue: SoftBank’s US$15.9bn follow-on of T-Mobile US shares

IFR Awards 2020
3 min read
Anthony Hughes

ECM on speed dial

The second-largest US sell-down of all time was just one leg of a five-part transaction that was sufficiently complex to give banks their biggest payday in nearly six years.

The US$20bn-plus monetisation of T-Mobile US was vital to SoftBank CEO Masayoshi Son’s commitment to sell US$41bn of assets to repay debt and buy its own stock as he pressed the reset button following investor pressure driven by its WeWork investment.

After just one day of public marketing, SoftBank cashed in the bulk of its 304.6m T-Mobile US shares through the sale of 154.2m shares to the public (to raise US$15.9bn), 19.4m in the form of a US$1.9bn three-year exchangeable, 19.75m through a rights offering (US$2bn) to T-Mobile shareholders, 5m to former Sprint CEO Marcelo Claure, and call options covering another 101.6m.

The follow-on increased the free-float by half yet priced at a file-to-offer discount of 3.4%, while pricing on the exchangeable of 5.25% coupon and 22.5% premium were the aggressive ends of guidance.

The common stock sale was upsized, and the exchangeable reduced in line, allowing SoftBank to secure more proceeds upfront. The inclusion of the rights issue likely helped stock performance during the day-long marketing effort (up 0.5%) as hedge funds would normally go short during bookbuilding, but this was complicated as shares went ex-rights at the end of the day.

T-Mobile had only recently completed its merger with SoftBank-backed Sprint. Since the merger Deutsche Telekom had held the voting power over SoftBank’s stock, in order to continue to consolidate T-Mobile in its accounts, a situation it wished to continue.

“What was visible to the outside world in terms of the complexity was probably 10%–20% [of the picture],” said Simon Watson, Goldman Sachs’ co-head of Americas ECM. “The team spent much of April/May unravelling the very complicated structure between Deutsche Telekom, T-Mobile and SoftBank.”

As a workaround, T-Mobile sold the stock and used those proceeds to buy back the same number of shares from SoftBank. The exchangeable was also sold through a trust to avoid registration requirements.

SoftBank sold at-the-money call options on 44.9m T-Mobile shares and a two-year call option on 56.6m shares that allowed it to retain upside and secure margin loans against the underlying value.

Removing the lingering overhang of SoftBank’s ownership saw nearly all the institutional investors that took one-on-one meetings participate in the deal, providing support for T-Mobile's 5G-driven growth outlook and potential for inclusion in stock indices.

Goldman, Morgan Stanley, Citigroup, JP Morgan, Barclays, Bank of America, Deutsche Bank and Mizuho Securities as joint bookrunners shared nearly US$240m of fees on the common equity sale alone. PJT Partners, The Raine Group and Morgan Stanley advised T-Mobile, SoftBank and Deutsche Telekom.

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