Sprint to buy out T-Mobile?

Sprint Corp. is nearing an agreement on the price, capital structure and termination fee for an acquisition of T-Mobile U.S. Inc. that could value the wireless carrier at almost $40 a share, people with knowledge of the matter said.

Sprint will offer about 50% stock and 50% cash for T-Mobile, leaving Bonn-based parent Deutsche Telekom AG with about a 15% stake in the combined company, according to the people, who asked not to be identified because the process is private. The agreement could be announced as soon as July, the people said. At just under $40 a share, T-Mobile’s equity would be valued at about $31 billion.

A deal would bring together the third-and fourth-largest U.S. wireless carriers to create a more formidable competitor to leaders AT&T Inc. and Verizon Communications Inc. Billionaire Masayoshi Son, the founder of Tokyo-based SoftBank Corp., which owns 80% of Sprint, has been pitching the deal to skeptical regulators as beneficial to consumers in both wireless and Internet service.

“In order to compete against the big two, AT&T and Verizon, scale is essential,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo. “The mobile-phone industry is an industry that needs business investment, so the larger the better.”

Deutsche Telekom, which owns about 67% of T-Mobile, was seeking at least $40 a share, two of the people said. SoftBank is willing to pay in the upper $30s, and the two sides have bridged the gap, the people said. The companies haven’t set an announcement date, and there’s still a lot of work to be done before a deal can be completed, including deciding management of the new entity, the people said.

Bulking Up

T-Mobile fell 3% to $33.27 at 9:58 a.m. in New York amid concerns about the transaction getting past U.S. regulators. Sprint dropped 1.2% to $9.29.

Deutsche Telekom added 0.5% to 12.48 euros at 3:57 p.m. in Frankfurt. SoftBank shares rose 0.3% to 7,817 yen at the close in Tokyo, paring this year’s decline to 15%.

A deal would only have a 30% to 40% chance of winning regulatory approval, said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris.

“Even if we take into account the operational recovery that T-Mobile’s new management implemented, this is a good price for Deutsche Telekom,” Iatrides said. “In the long run they don’t have the size to compete as a standalone company. The amount of capex they’d need to maintain the same quality as AT&T and Verizon would be way too high.”

Industry Consolidation

Softbank’s Son declined to comment at an unrelated press conference in Japan today. Bill White, a spokesman for Sprint, declined to comment, as did Andreas Fuchs, a spokesman for Deutsche Telekom. Anne Marshall, a spokeswoman for T-Mobile, didn’t respond to a message seeking comment.

Son is seeking to bulk up Sprint as consolidation increases across the communications industry. Verizon closed a deal earlier this year to buy out Vodafone Group Plc’s stake in their wireless venture for $130 billion. Comcast Corp. and Time Warner Cable Inc. have announced a merger, and AT&T plans to acquire satellite-TV operator DirecTV for $48.5 billion.

One of the hangups remains agreeing to leadership for the new company, the people said. A month ago, a person familiar told Bloomberg News that T-Mobile Chief Executive Officer John Legere, 56, was the leading candidate. A few days later, Sprint CEO Dan Hesse said in an interview on Bloomberg Television that it wouldn’t bother him not to run the combined company.

“I am 60 years old,” he said. “I have a lot of things I still want to do in life.”

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