Sprint, majority-owned by Japan’s SoftBank, is nearing an agreement to buy T-Mobile US in a deal worth around $40 billion.
According to Bloomberg sources, Sprint – the third-largest mobile operator in the US – has tabled a bid that values its smaller rival at almost $40 per share. That would place an equity value of about $31 billion on T-Mobile US.
Factor in T-Mobile US’ debt that Sprint will be taking on (around $14.5 billion), yet adding the $5.5 billion cash on T-Mobile US’ books, and the enterprise value ends up at around $40 billion.
Sources said Sprint will offer 50/50 mix of stock and cash for T-Mobile US, leaving Deutsche Telekom (which owns 67 per cent of the operator) with a 15 per cent stake.
An agreement between the two companies could be announced next month.
There is, however, much work to be done. Deutsche Telekom is apparently looking for a hefty compensation package of $3 billion from Sprint in the event that any future merger with T-Mobile US is blocked by regulators (a much higher sum than the $1 billion previously reported by the Wall Street Journal). SoftBank, it seems, is starting negotiations with a $1 billion pledge.
Despite the huge difference, Bloomberg sources said the two sides were nearing an agreement on a reverse termination fee.
Masayoshi Son, Sprint chairman and SoftBank CEO, has long coveted T-Mobile US, arguing that a tie-up between the third- and fourth-largest mobile operators in the US would give the necessary scale to mount a more serious challenge to front-runners Verizon Wireless and AT&T.
It’s far from certain that Son will convince regulators to allow a merger to go ahead. At a recent conference, however, he argued that recent mega-deals between telecoms and media companies – AT&T’s $49 billion move on DirecTV, and Comcast’s $45 billion deal for Time Warner – made a tie-up between Sprint and T-Mobile US all the more compelling from a regulatory point of view.
The two enlarged firms, said Son, meant competition for internet access was restricted as there was only one other company – Verizon – that could match them in terms of scale.
“Right now, there are three big players out there, and they are getting even bigger,” he said Son. “If anyone says four is better than three, I agree with that. We should be number four.”.