DT/TMUS: Don‘t rule anything out

Research evidence excerpt

DT/TMUS: Don‘t rule anything out

Idea

e = Morgan Stanley Research estimatesM(see here and here). Three weeks ago, the WSJ reported that DT was considering a

merger of its European and US arms (link here). According to the article: "CEO Tim

Höttges is about to embark on the most ambitious test of his professional career:

trying to push through the largest public-company merger in history". We previously

outlined our initial thoughts on such a combination (Potential DT combination with

TMUS – Key Thoughts), as well as a follow-up note on Investor feedback. We present

some new / updated thoughts.

If it's not broken - DT might continue its current / 6yr strategy (slow but steady

creep upwards of TMUS stake). We estimate DT will increase its TMUS stake from

43.6% (Apr 2020) to 56% (Dec 2026e), for a +28% rise over 6.5 years (or ca +2ppts

pa). A continuation of the current pace would see DT reach 64% of TMUS equity by

2030e (and 74% by 2035e, Exhibit 4 ). This strategy is transparent, and has been

working, in our opinion - essentially 'It's not broken'. i. DT is increasing its holding at

market price (without paying a premium); ii. DT's lack of participation in the share

re-purchase program transmits a signal of DT's confidence (to investors) with

regards to the outlook for TMUS (operating performance, share price); iii. Last, the

stake increase is meaningfully accretive to both EPS and our SOTP valuation (as DT

is presently buying at -30% below our NAV).

DT could conceivably hope to re-rate its business to US stock market multiples...

DT shares are currently trading at a ca -45% discount to the European stock market.

Moreover, the DT stub is trading at <4x EBITDAaL. Given Telekom's strong

EBITDAaL / EPS growth outlook (+6% / +15% pa, respectively), we believe these