Sprint and T-Mobile Agree on Merger Terms
It isn’t a deal yet, but if reports are accurate the insatiable appetite that Sprint has for acquiring T-Mobile might actually get sated. According to the Wall St. Journal the two companies have agreed tentatively on the merger terms, with a deal to be possibly announced later this summer after more work is done. If a deal is accomplished, U.S. consumers would have one less cellular company to choose from as the third and fourth largest cellular providers would become one. Some might say it would be a merger of two also-rans with Sprint and T-Mobile separately lagging behind Verizon and AT&T.
Sprint has been talking about a merger or take over with T-Mobile for quite some time, both before and after it was acquired by Japan’s Softbank last year. Softbank owns 80% of Sprint. T-Mobile is owned by Deutsche Telekom. Any deal would of course be subject to regulatory and anti-trust scrutiny. Industry watchers think those approvals would not necessarily be easily granted given that a merger would take one player out of the game and decrease competition.
According to Bloomberg, sources are reporting that part of the work still to be done will see T-Mobile and Sprint preparing models that show how the two companies would fare if they remained independent compared to results if they were to merge.
The financial terms of the $32 billion dollar deal are reported as a half-stock half-cash transaction with Sprint paying around $40 a share. Deutsche Telekom would retain a 15% to 20% interest in T-Mobile according to reports. Sprint has agreed to pay T-Mobile more than $1 billion dollars in cash and other assets if the deal does not go through.
According to reports no financial agreement has been signed and both companies would still need to perform due diligence as well as obtain financing. Action on the long talked about merger heated up last month after the Federal Communications Commission voted to approve rules for an auction of airwaves that are currently held by broadcasters. That auction is expected to take place in 2015 and both companies are reported to believe that the new terms will help their case for the possible merger.
If the merger does indeed go through it has the potential to change the cellular landscape in the U.S., creating a larger third place company to compete with Verizon and AT&T. Softbank’s Masayoshi Son, who has taken an aggressive role in pushing for the merger, has already made loud pronouncements about his eagerness to take on AT&T and Verizon. He has stated publicly that the service the two predominant cellular providers offer U.S. customers is both slower and more expensive than what he is already providing his customers in Japan. Son has been very vocal with his statements about how much he loves America and wants to offer U.S. consumers better options with the caveat that he needs T-Mobile’s network in order to pull off those dreams.
As hard charging as Masayoshi Son may be, there is also the unresolved question about who would lead the new company in the U.S. The Verge is reporting that one source is naming T-Mobile’s flamboyant CEO John Legere as the point man. Legere has been as outspoken as Son about challenging AT&T and Verizon and his UnCarrier plans have indeed shaken things up a bit in the U.S. Telecom market. T-Mobile recently passed Sprint to become the third largest carrier in the U.S.
It is obviously early in a process that has already been long in the news to draw any conclusions about the possible ramifications of such a deal for U.S. consumers. With talk of a merger having been in the works for some time already the idea has both advocates and detractors. If the companies are granted regulatory approval after a potential deal is announced this summer it would still take some time for a deal to close and news of any potential benefits U.S. consumers may or may not see to surface.