T-Mobile to Buy Sprint for $26.5 Billion in Bet on New Networks

T-Mobile to Buy Sprint for $26.5 Billion in Bet on New Networks

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T-Mobile US Inc. agreed to acquire Sprint Corp. for $26.5 billion in stock, a wager that the carriers can team up to build a next-generation wireless network and get a jump on industry leaders Verizon Communications Inc. and AT&T Inc, according to Bloomberg.

The deal follows years of will-they-won’t-they deliberations between Deutsche Telekom AG, the German company that controls T-Mobile, and SoftBank Group Corp., the Japanese owner of Sprint, and comes about five months after an earlier merger attempt collapsed. The combination reduces the wireless industry to three major competitors from four, ensuring heavy scrutiny from regulators.

“This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience,” John Legere, the T-Mobile boss who will serve as chief executive officer of the combined entity, said in the statement announcing the deal Sunday. The changes will come faster than either company could do on its own, he said.

Operating as T-Mobile, the company would have about $74 billion in annual revenue and 70 million wireless subscribers. Verizon is the largest U.S. carrier with $88 billion in 2017 wireless revenue and 111 million subscribers, and AT&T would be No. 2 with $71 billion in wireless revenue and have 78 million regular subscribers.

The combination values each Sprint share at 0.10256 of a T-Mobile share -- $6.62 a share based on T-Mobile’s Friday closing price of $64.52. The ratio was originally fixed based on T-Mobile’s share price at the close on April 9, before news of the renewed talks emerged, and would have valued Sprint at $6.13 a share based on that price, one of the people said. News of the talks sent both companies’ stocks surging, adding to the valuation of the deal. Sprint closed Friday at $6.50 a share.

Under terms of the deal, Deutsche Telekom will end up with a 42 percent ownership stake while SoftBank will have 27 percent. T-Mobile’s Mike Sievert will be president and chief operating officer. The German company’s chairman, Tim Hoettges, will serve in that role at the combined company, and the board will include SoftBank Chief Executive Officer Masayoshi Son. The companies said they expect synergies of about $43 billion based on net present value, with more than $6.5 billion on a run-rate basis.

The deal marks the third time that Son has acted on his long-held plan to combine Sprint and T-Mobile. Previous negotiations broke down after the two sides couldn’t agree on how to structure control of the combined entity, people familiar with the matter said at the time.

The two carriers have complementary wireless spectrum that may be a strategic advantage as the companies build a faster fifth generation or 5G network. T-Mobile controls a large portfolio of lower-band airwaves that can travel long distances and pass through walls and windows. Sprint has the largest U.S. holding of higher-band, 2.5 gigahertz spectrum that can handle more data capacity but over limited distances.

The transaction would be “good for consumers, good for the economy, good for the country,” Sprint CEO Marcelo Claure said on a conference call Sunday. Claure will serve as a board member of the combined company.

Sprint and T-Mobile together create a larger third competitor that “should be growing at a materially faster pace” than its larger rivals while capitalizing on estimated total cost benefits of about $64 billion, Jonathan Chaplin, an analyst with New Street Research LLC wrote in a note April 15.

The companies dashed a previous plan to merge in 2014 after meeting resistance in Washington. Regulators said that a four-competitor wireless market fosters more choice, price competition and innovation, which proved to be largely true.

Sprint and T-Mobile will try to convince regulators and possibly President Donald Trump that the combination will lead to bigger investments in 5G networks and put pressure on larger rivals, even though consumer benefits aren’t obvious and heavy job cuts are expected. The Trump administration is currently trying to stop AT&T Inc.’s $85 billion takeover Time Warner Inc., saying the deal will lead to higher pay-TV prices.

For Sprint, which hasn’t had a profitable year in more than a decade, the merger is a bailout. The company is four years into a go-for-broke turnaround effort launched when Claure took over as chief executive officer and started slashing prices on phones and offering half-off service plans to stop customer losses.

But the price battles only further fueled the cash burn. The need for more and more financing took the company back to the junk-bond market in February after a three-year absence. In March, Sprint sold a second round of airwave-backed bonds.

Under Legere’s leadership T-Mobile became the fastest growing carrier gaining more than 6 million subscribers over the past three years, though the pace of that growth has steadily slowed. T-Mobile has forced the industry to try and match its sales techniques like offers including phone financing, free video streaming and unlimited data plans.

 

For SoftBank, the transaction puts the mobile-service empire that billionaire CEO Son built in a better position to compete with U.S. cable companies by offering high-speed wireless internet connections and streaming video. The combination also gives Deutsche Telekom a stronger vehicle to expand in the profitable U.S. market.

T-Mobile was advised by PJT Partners and Deutsche Bank, while Goldman Sachs advised the company and its controlling shareholder Deutsche Telekom. Morgan Stanley also helped Deutsche Telekom and Evercore advised T-Mobile’s committee of independent directors. Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, and RBC are providing T-Mobile with committed debt financing.

Sprint was advised by Raine Group and JPMorgan, while Centerview Partners helped Sprint’s independent directors. Mizuho Securities and SMBC Nikko Securities provided financial advice to SoftBank.

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