After a short dalliance to discuss possibilities with US cable companies Charter and Comcast, Sprint has reportedly resumed “active” merger talks with stateside rival T-Mobile.
Sprint share prices jumped more than nine per cent on the news Tuesday, while T-Mobile stocks got a five per cent bump.
According to a report from CNBC, the latest conversation is focused on a stock-for-stock deal in which Deutsche Telekom would retain majority ownership of the new company. CNBC sources said T-Mobile CEO John Legere would likely remain in charge following the transaction, but noted SoftBank head Masayoshi Son wants to be involved in how the combined entity operates.
The news comes as T-Mobile CEO John Legere heads to Europe for a Deutsche Telekom board meeting. The report also follows comments from Sprint CEO Marcelo Claure last month that a deal announcement was “coming in the near future.” At the time, Claure said Sprint was speaking to multiple parties about a potential arrangement, but indicated talks with T-Mobile and Deutsche Telekom were “encouraging.”
Hurdles for a potential deal
T-Mobile has reportedly not yet initiated due diligence work on Sprint, and the pair have yet to settle on an exchange ratio.
Back in December, analysts at MoffettNathanson warned the latter could be a problem.
“As we’ve written repeatedly over the past year, if one strips away the distortions created by handset lease accounting, Sprint trades at an extraordinary premium to T-Mobile,” MoffettNathanson analysts wrote in a research note. “Perhaps the market will never go through the effort to figure out just how large these distortions are, but T-Mobile and its parent Deutsche Telekom certainly will.”
If the pair can come to terms, any agreement would have to clear regulatory scrutiny from the US Department of Justice (DOJ).
In 2011, the DOJ under President Barack Obama killed a proposed $39 billion merger between AT&T and T-Mobile. While the new White House administration wouldn’t have a direct hand in the DOJ’s review, President Donald Trump’s hand-picked new DOJ anti-trust chief Makan Delrahim might.
It is unclear whether Delrahim would recuse himself from the review of a potential merger involving T-Mobile. A former corporate lawyer and lobbyist, Delrahim represented T-Mobile in its 2013 merger transaction with MetroPCS. During his confirmation hearing in May, Delrahim indicated he would meet with DOJ ethics officials to address potential conflicts in cases involving “past clients, and clients of my former employer, my law firm”. He declined to comment on the DOJ’s decision on the AT&T-T-Mobile merger, as well as on whether a Sprint-T-Mobile deal should be allowed to go forward, citing a lack of data.
Delrahim has also done work for companies including AT&T, Comcast, Apple, Qualcomm, Oracle and Microsoft.
Trump has previously expressed favourable views on deals that create more US jobs. But Delrahim said during his hearing that “there should be no political influence in antitrust law enforcement decisions.”