Following a failed bid to merge its US business with Sprint, Deutsche Telekom changed course by increasing its stake in T-Mobile US through various share repurchases.
In the US, T-Mobile launched its first-ever stock buyback programme, seeking to repurchase up to $1.5 billion of its common stock by end-2018. Combined with a separate programme Deutsche Telekom is initiating, T-Mobile’s move will add about 2 per cent to its parent’s holdings, taking its stake to 64 per cent.
T-Mobile CFO Braxton Carter (pictured) revealed details of the shift at an investor conference today (6 December). He explained Deutsche Telekom is still working out the final details of its programme, but revealed he expects the company to undertake a $500 million buyback of T-Mobile stock resulting in a total repurchase of $2 billion worth of the US operator’s stock.
According to Carter, the T-Mobile buyback program “shows the absolute confidence we have in the ramping free cash flow story of the business”. The operator will use cash on its 2017 balance sheet to repurchase the shares.
Free cash flow in Q3 stood at $921 million compared with $581 million in the same period of 2016.
Beyond consolidating ownership, stock buybacks can serve a number of functions including correcting undervaluation and improving financial ratios like earnings per share.
Carter noted the programme is T-Mobile’s “initial foray” into stock repurchases and said the company is expecting to “learn a lot”. Ultimately, T-Mobile aims to secure an investment grade rating from the rating agencies, Carter said.
“We’re always prudent in the way we address things. We want to learn what impact this has on the market. We want to see the progression of this…We don’t want to overheat the stock, but we want a sustainable programme.”