T-Mobile and Sprint have clinched a $146 billionn (€120 billion) deal - including debt - that will combine America's third and fourth largest wireless carriers after a five-year courtship.
The new company, which will be led by T-Mobile chief executive John Legere, will have more than 127 million wireless subscribers in the country, putting it much closer in stature to AT&T and Verizon Communications.
The all-stock deal valued Sprint at $59 billion, including debt. Some Sprint executives will join the senior leadership of the combined group, which will have dual headquarters in Kansas City and Bellevue, Washington.
A deal is expected to face significant regulatory hurdles as antitrust authorities have in the past expressed their opposition to reducing the number of major telecom carriers from four to three players.
The road to a deal has been a long one for Deutsche Telekom and SoftBank, the respective controlling shareholders of T-Mobile and Sprint. While the two had entered talks on a merger as early as 2014, a deal had always proved elusive.
Sprint abandoned its pursuit of T-Mobile in the summer of 2014 after SoftBank chief executive Masayoshi Son failed to win over regulators, who said any deal that would take the number of major wireless carriers in the country from four to three would face staunch resistance.
A price war in the industry ultimately broke out as T-Mobile fought to gain market share, and in 2015 the Deutsche Telekom-backed group overtook Sprint as the third-largest carrier in the US. Since then, Sprint has amassed more than $30 billion of debts as it has invested in its wireless network and its market valuation has slid.
The companies attempted a second deal last year, but talks broke down when the two sides could not agree to a value for Sprint or the governance of the company in a tie-up.
SoftBank owns roughly 85 per cent of the carrier and has been under pressure to revitalise Sprint. The deal with Deutsche Telekom, which owns more than 60 per cent of T-Mobile, was seen by some Wall Street analysts as necessary ahead of the looming shift to 5G wireless technology.
Carriers in the US are expected to spend billions of dollars upgrading their networks for the new wireless standard, which is expected to launch next year and bring a new range of devices on to the internet.
The deal between Sprint and T-Mobile faces an ambiguous regulatory backdrop and will probably run into some of the same opposition that the companies faced when they had considered a deal under the Obama administration. While investors and dealmakers had expected lower regulatory hurdles from the Trump White House, a number of transactions have been blocked this and last year that have cast that view into doubt.
The Department of Justice is suing to block AT&T’s $85.4 billion purchase of entertainment company Time Warner, arguing that it would hamper competition and hurt consumers. Analysts with Jefferies said that regulatory approval for the transaction between Sprint and T-Mobile seemed even riskier today.
“When deal talks first emerged last year, investors were hopeful that a seemingly more business-friendly administration would be positive for M&A,” said Scott Goldman, an analyst with the investment bank. “In reality, we have seen a regulatory environment riddled with Department of Justice opposition and deal concessions.” – Copyright The Financial Times Limited 2018
