The US’ third largest mobile operator Sprint Corporation is reported to be working on a potential takeover offer for rival T-Mobile US which could top US$20bn. Sprint is studying the regulatory environment carefully and could launch a bid in the first…
The US’ third largest mobile operator Sprint Corporation is reported to be working on a potential takeover offer for rival T-Mobile US which could top US$20bn.
Sprint is studying the regulatory environment carefully and could launch a bid in the first half of next year, people familiar with the matter told The Wall Street Journal.
T-Mobile’s stock jumped more than 8% following the publication of the report and its parent Deutsche Telekom’s share price rose almost 4%.
T-Mobile’s stock has increased by more than 67% since May when its reverse merger with MetroPCS closed. Its market capitalisation has recently crossed the US$20bn mark.
Meanwhile Sprint’s shares rose around 3%. Softbank – which owns just over 80% of Sprint – experienced a 2%-plus drop in its share price.
Any merger between the two would be controversial as it would cut the US’ mobile network operators from four to three.
T-Mobile is wary of wasting time on a merger following the protracted and ultimately failed attempt by AT&T to purchase the German-owned operator in 2011, the report said.
A change in the US political situation in the future could make for a more favourable regulatory environment, although there are also benefits to doing a deal now.
The capital markets have demonstrated they are happy to fund big deals, such as the US$60bn-plus financing package secured by Verizon Communications for its US$130bn acquisition of the remaining 45% of its mobile subsidiary.
Charter Communications is also said to be close to securing US$25bn in debt to fund a takeover offer for Time Warner Cable.
If Sprint and T-Mobile agreed a deal next year, it would also allow the companies to merge before the US next major spectrum auction in 2015.
However, Sprint’s debt is rated as junk and the company may be limited in how much more leveraged it could become. A combined entity would face an immediate expense in 2015 with the scheduled sale of frequencies.
Sprint would also have to integrate T-Mobile’s network into its system – a process which proved difficult and costly in the past when it merged with Nextel.
From a regulatory point of view, US watchdogs have previously said they are in favour of keeping four network operators. When AT&T’s takeover of T-Mobile was effectively blocked, the antitrust regulator defined the smaller player as a challenger which disrupted its three larger rivals.
Meanwhile the new head of the Federal Communications Commission (FCC), Tom Wheeler, has been quoted as saying that with four carriers the US mobile market is competitive and that it was important to keep it that way.
However, the CFOs of Sprint and T-Mobile disagree with that argument. Speaking at a conference in late September, Sprint’s Joe Euteneuer said that the market would be more competitive if the number of major players fell from four to three.
T-Mobile’s CFO Braxton Carter also said that having a combined, scaled third operator would create more competition that the current “duopoly structure”.
Both AT&T and Verizon have over 100 million mobile customers, streets ahead of other players in the field. If Sprint and T-Mobile were to merge, their combined subscriber base would not cross the 100 million threshold.
