January 20, 2014
Sprint, the third largest carrier in the U.S., may take over its smaller rival, T-Mobile. Sprint has received proposals from at least two banks on how to finance the acquisition. T-Mobile’s market value is reportedly around $26 billion, but the deal would likely cost $50 billion total, with approximately $20 billion going toward paying off T-Mobile’s debt. The potential takeover comes at a little more than a year from an expected government auction of wireless airwaves.
People close to the matter told The Wall Street Journal that terms of any bid have not yet been reached, and there’s no specific timetable on when it might happen. But the article reports that “both sides are eager to reach a decision” and expect it could take 12 to 18 months to get regulatory approval.
Sprint and T-Mobile’s major investors — Japan’s SoftBank Corp. and Germany’s Deutsche Telekom, respectively — are “eager to gain scale quickly” to compete with larger rivals AT&T and Verizon. WSJ reports that capital markets are “favorable for funding large deals” right now.
“Executives at Sprint and T-Mobile have publicly expressed interest in a merger over the long term,” says the article. Such a merger was discussed years ago, but the idea never panned out.
Currently, Verizon and AT&T have more than two-thirds of U.S. wireless customers. If the deal between Sprint and T-Mobile — which are the nation’s third and fourth largest carriers, respectively — were to go through, it would “leave the market dominated by a trio of national carriers,” notes WSJ. “A deal would also likely face heavy scrutiny from U.S. antitrust authorities who have indicated they are wary of further consolidation in the sector.”
“Having funds at the ready to cover T-Mobile’s existing debt would be necessary because debt holders could cash in their bonds if the company changes ownership,” according to the article. “Knowing the financing can be done ticks off an important box for Sprint as it contemplates a bid.”
But the deal would involve major hurdles, as the two carriers and their respective investors are all publicly traded companies, which would make for complex negotiations.
Bloomberg reports that SoftBank has entered into direct talks with Deutsche Telekom to resolve any obstacles to the deal: “Unresolved issues include how much cash and stock SoftBank will pay for Deutsche Telekom’s 67 percent stake in T-Mobile, and how Sprint and T-Mobile will be integrated, two people said.”