Sprint, the third-largest mobile operator in the US, has received proposals from at least two banks on how it might finance a takeover bid for smaller rival T-Mobile US, according to The Wall Street Journal (WSJ).
Sources say terms of a bid have yet to be firmed up, but the enterprise value (takeover price) of T-Mobile US is pegged at around $50 billion.
The sum is arrived at by paying about $31 billion for T-Mobile, plus a possible refinancing to the tune of $20 billion in existing T-Mobile debt.
The WSJ report says having funds at hand to cover T-Mobile’s existing debt would be necessary since debt holders could cash in their bonds if the company changes ownership.
As speculation of a Sprint takeover has grown, so too has the value of T-Mobile shares. They have risen nearly 28 per cent since it was reported last month that Sprint, majority-owned by Japan’s SoftBank, was stepping up its efforts to buy T-Mobile US (67 per cent owned by Deutsche Telekom).
T-Mobile US now has a market cap value of about $26 billion.
Fuelling takeover speculation is Deutsche Telekom’s transfer of its T-Mobile US stake from a German holding company to a Dutch holding company.
BTIG analyst Walter Piecyk said in a research note, quoted by Reuters, that Deutsche Telekom could be transferring ownership for tax reasons related to a potential T-Mobile US sale.
Deutsche Telekom claims the transfer is part of a larger internal restructuring to simplify its business structure, and no more should be read into it.
A tie-up between the third and fourth-largest mobile operators in the US would likely face intense regulatory scrutiny, but WSJ sources say both operators – if a deal were to be reached – would prefer it to happen before a major auction of spectrum expected in mid-2015.
It’s widely thought that winning regulatory approval could take between 12 and 18 months, although that may not be forthcoming.
Another potential stumbling block is that regulators rather like the “uncarrier” strategy of T-Mobile US, which has seen the operator ramp up net additions.
At the CES show in Las Vegas, however, T-Mobile US boss John Legere suggested that the T-Mobile US way would still prevail – even after a merger.
A deal with Sprint “would provide significant scale and capability,” he said, but “the T-Mobile Uncarrier business, the people, the brand, the attitude is here to stay.”
If a merger did go ahead, the new combination would have approximately 101 million connections against 110 million connections for AT&T and 118 million for Verizon Wireless (GSMA Intelligence, Q4 2013).