Sprint, T-Mobile Renew Romance as Talks Reported Again Underway
Sprint and T-Mobile US stocks jumped on reports Tuesday that they are once again in merger talks. Analysts and other industry observers saw renewal as all but inevitable but warned that regulatory and other hurdles remain. Sprint shot up as much 25 percent and closed up 17 percent at $6.02. T-Mobile closed at $63.13, up 5.7 percent.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Talks have been broken down in the past between Germany’s Deutsche Telekom, which controls 63 percent of T-Mobile US, and Japan’s SoftBank, which owns 85 percent of Sprint, over control issues. The companies ended their last round in November (see 1711070075). Sprint CEO Marcelo Claure said those talks collapsed because SoftBank CEO Masayoshi Son decided in the end he wanted to retain control of the combined company (see 1711080055). Sprint and T-Mobile didn’t comment.
Observers in November said the end of the talks took a big potential issue off FCC Chairman Ajit Pai’s plate: whether the agency would agree to three national wireless carriers instead of four. The renewal of talks come as AT&T, Time Warner and DOJ battle in court over Justice’s rejection of a combination between those two companies (see 1804100022).
“It was inevitable that the two would come back to the table,” Craig Moffett of MoffettNathanson told us. “But it would be a mistake to assume that it will be easy to get a deal done. Sprint is still overvalued relative to T-Mobile, and that makes it hard for Deutsche Telekom to agree to a deal. Ironically, when Sprint’s stock price spikes higher on news like today’s, that only makes it even harder to get a deal done.” Control remains an issue, he said. “If they can get through all of that, and agree to a deal, you’ve got something like coin-flip odds that the deal would be approved by the DOJ.”
Jonathan Chaplin of New Street Research told us it's hard to “fathom” why Son walked away last year from $50 billion in “new value” that would have been created by a combination. “Both sides agreed to the value of the synergies,” Chaplin said. “By not doing the deal, this was all lost.” If control is the issue, “the logical response is to reverse the structure so that Sprint acquires T-Mobile and Masa has control,” he said about Son. Last year, DT was also “loath” to give up control, Chaplin said. “Maybe they have decided $50 billion is too much value to walk away from and, for a fair split of the spoils, they will give up control,” he said. “Maybe they are more worried about the future of U.S. wireless. Maybe things have changed in the business in Europe so that they are reconsidering their options. Or maybe Masa has decided that he didn’t need control after all and we are back to the old deal.”
“It's the regular check-in of two companies with a crush on each other, but who are standing in their own way of acting on their intentions,” said Roger Entner, analyst at Recon Analytics. “Unless SoftBank changed its opinion that as the smaller, slower growing, less profitable, more indebted company it should have the majority share of the combined entity, nothing has changed and nothing will happen. Time is on the side of T-Mobile as it is larger, growing faster, more profitable and has less constraints in the debt market.”
Many questions remain, Wells Fargo’s Jennifer Fritzsche emailed investors: “If the press was to be believed last year, the breakup of the deal came down to SoftBank wanting more control. Our strong sense is this view has not changed in 6 months.” The only thing that could have changed since last year is that Son may now be willing to accept a lower price, BTIG’s Walter Piecyk told investors. “It is clear that there are still huge synergies in a merger between these two companies,” he wrote. “However, Sprint’s recent tower and fiber contracts might have reduced those synergies. Nevertheless, this would still be an attractive deal to attempt, regardless of the regulatory risks.”
“Although it’s uncertain how the DOJ views competition and markets after its scrutiny of Sinclair/Tribune and its litigation against AT&T/Time Warner, Sprint and T-Mobile almost have to try a combination if they want to stay competitive,” said a lawyer who represents wireless clients.
The deal is already facing pushback on social media. “Dear @TMobile -- please don't do this. I'm a customer of T-Mobile and not Sprint for a reason,” tweeted Steve Lackmeyer, columnist at The Oklahoman, in Oklahoma City.