Sprint gets $40B backing for T-Mobile US acquisition in August – report

Sprint gets $40B backing for T-Mobile US merger announcement in August – report

20 JUN 2014

Sprint has lined up eight banks to finance its intended purchase of smaller rival T-Mobile US, according to Reuters’ sources, and a merger announcement is on the cards for August.

Details have so far been sketchy on how Sprint – majority-owned by Japan’s SoftBank – would finance a T-Mobile US takeover, but sources “familiar with the matter” say a debt package exceeding $40 billion has been put together.

As well as commitment from the eight banks – three of which are Japanese – the package includes a $20 billion bridging loan from SoftBank.

The companies involved, said the sources, are looking to sign off on the financial details in time for a merger announcement around August.

According to various reports last month, Sprint and Deutsche Telekom (which owns 67 per cent of T-Mobile US) had broadly agreed on a deal that would value T-Mobile US 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 would offer a 50/50 mix of stock and cash for T-Mobile US, leaving Deutsche Telekom with a 15 per cent stake.

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, however, that Son will convince regulators to allow a merger to go ahead. At a recent conference, however, he argued that 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 if those other deals were given the regulatory thumbs up.

The two enlarged firms, said Son, would mean 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.”

Conscious of the regulatory risks, Deutsche Telekom reportedly managed to secure a hefty compensation package of $2 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).

Deutsche Telekom will also reportedly pay a break-up fee of roughly $1 billion if it tries to wiggle out of the deal.

The banks involved in Sprint’s $40 billion debt package, said Reuters’ sources, are JPMorgan Chase & Co, Goldman Sachs Group, Deutsche Bank, Bank of America Merrill Lynch and Citigroup, as well as Japanese banks Mizuho Financial Group, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Financial Group.

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Ken Wieland

Ken has been part of the MWC Mobile World Daily editorial team for the last three years, and is now contributing regularly to Mobile World Live. He has been a telecoms journalist for over 15 years, which includes eight...More

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