Two banks have presented financing options to Sprint Corp for a potential US$51bn merger with smaller rival T-Mobile US, people familiar with the matter told The Wall Street Journal. The proposals have given Sprint confidence that it could fund a deal,…
Two banks have presented financing options to Sprint Corp for a potential US$51bn merger with smaller rival T-Mobile US, people familiar with the matter told The Wall Street Journal.
The proposals have given Sprint confidence that it could fund a deal, which could consist of 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.
The promise of financing clears one hurdle to completing a deal, but the greatest obstacle remains regulatory approval.
A merger would take the number of scaled US mobile network operators down from four to three, and would come at a time when the American wireless market is seen to be functioning fairly healthily, according to industry experts. Challenger T-Mobile, the fourth largest operator, has managed to pinch subscribers from larger operators – particularly AT&T – through innovative pricing offers.
Analysts agree that if regulators were to approve a deal, significant spectrum divestments would be required. However, noises from the Department of Justice and the Federal Communications Commission have suggested a preference to retain four nationwide operators.
New Street Research analyst Jonathan Chaplin is sceptical a deal can be done. In a memo he said: “Creative concessions could improve the odds of approval; however, the deal would still face a stiff regulatory challenge … There are concessions that could better the odds, but we think the chances of approval are less than 50%.”
Analysts have also speculated that T-Mobile’s parent, Deutsche Telekom, may not be able to face a long drawn-out regulatory review with a high risk of failure after AT&T’s collapsed takeover of T-Mobile in 2011. Were a deal to be agreed, the German incumbent would likely demand a significant break-up fee.
This week Deutsche Telekom transferred its 67% stake in T-Mobile from a German holding company to a Dutch holding company.
Commenting on the relocation in a blog post, BTIG Research analyst Walter Piecyk said: “The Netherlands offers favourable tax treatment on asset sales. Vodafone held its stake in Verizon Wireless in the Netherlands and is expected to have a very “tax-efficient” transaction in the sale of those shares.
“This move could increase the speculation that Deutsche Telekom might be a willing seller.”
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. The company now has a market capitalisation of close to US$24bn.
However that is not expected to deter Masayoshi Son, CEO of Sprint’s Japanese parent Softbank, who is eager to gain the scale to compete with market leaders AT&T and Verizon Wireless.
