Japanese telco Softbank is reportedly in direct talks with Deutsche Telekom as it looks to overcome barriers to a takeover of the US’ number four operator, T-Mobile US. Softbank would like to combine T-Mobile with its US subsidiary, Sprint Corp, to…
Japanese telco Softbank is reportedly in direct talks with Deutsche Telekom as it looks to overcome barriers to a takeover of the US’ number four operator, T-Mobile US.
Softbank would like to combine T-Mobile with its US subsidiary, Sprint Corp, to create a scaled third operator and challenge market leaders Verizon Wireless and AT&T.
The two companies are in early talks to see how much cash and stock Softbank would pay for Deutsche Telekom’s 67% stake and how the operators would be integrated, people with knowledge of the matter told Bloomberg.
Deutsche Telekom wants an all-cash offer for its stake and Softbank CEO Masayoshi Son – who is said to be leading the negotiations rather than Sprint – is working to satisfy the German incumbent, Bloomberg wrote.
Son is attempting to raise US$20bn in debt, from Goldman Sachs, Mizuho, Credit Suisse and others, that would land on Sprint’s balance sheet, the report said.
Another barrier might be the size of the break-up fee Deutsche Telekom could demand. AT&T had to pay US$7bn to Deutsche Telekom in 2011 when its attempt to take over T-Mobile failed. Softbank and Sprint could not afford to pay that sort of penalty, people cited in the report said.
Deutsche Telekom declined to comment on the report and Softbank could not be reached for comment before the press deadline.
Last week The Wall Street Journal reported that two banks had presented financing options to Sprint for the potential merger. The operator could make a US$31bn offer for T-Mobile and provide for a possible refinancing of US$20bn of the target’s debt, the report said.
Sprint would need to be able to cover T-Mobile’s existing debt as the target’s debt holders have the option to cash in their bonds if there is a change in ownership.
However the biggest obstacle to a deal remains the perceived stance of regulators, which are said to be keen on ensuring four nationwide players in the market.
New Street research analyst Jonathan Chaplin was sceptical a deal could win the approval of watchdogs, but did present some potential solutions.
“There are concessions that could better the odds, but we think the chances of approval are less than 50%,” Chaplin wrote in a memo to clients. “For example enabling a new entrant like Dish, and/or retaining the maverick T-Mobile management would help.
“Despite less than even odds, we believe that Softbank may be willing to attempt a deal, if they can structure it to lower the cost of failure. A creative solution may be to offer a break-up fee in 2.5 GHz spectrum. Losing access to say 40 MHz of spectrum would not jeopardise Sprint’s business model and would address T-Mobile’s capacity needs down the road.”
T-Mobile’s share price has risen significantly over the last few months as speculation of a deal has heated up – more than 25% since the start of December.
