Sprint and T-Mobile are in active negotiations about a potential merger, according to sources close to the situation. Both sides have been engaging in talks since August, but the executives have remained relatively silent on the matter, leading many analysts fear that the deal may have gone sour.
According to an exclusive report by CNBC, T-Mobile and Sprint have agreed that a parent company would have some level of control in a blend of the two brands. The main dispute could be leadership: T-Mobile CEO John Legere is expected to helm the merged companies, but SoftBank’s Masayoshi Son has said that he wants a say when it comes to how the business is run moving forward.
Will T-Mobile & Sprint Merge?
Sources partaking in the deal note that a finalized agreement is still weeks away. T-Mobile, Sprint and their parent firms – Deutsche Telekom and SoftBank – have been in frequent deliberations for more than a month (there were preliminary talks earlier this year).
Any settlement would likely result in a stock-for-stock merger. It would also lead to Deutsche Telekom emerging as the majority owner and SoftBank coming out as the minority stake holder. The details, including an exchange ratio for the corporate fusion, are still being ironed out.
Both sides have declined to comment on the reports.
The mobile operators reignited negotiations in August after Sprint’s exclusive negotiating period with Comcast and Charter Communications expired in July.
Industry analysts widely believe Legere will lead any combination, but the SoftBank CEO has publicly stated that he wants to have plenty of say as to how the integrated companies are managed. The latter may provide another difficulty to the transaction because Deutsche Telekom may not relent.
The German carrier would much prefer Legere to control operations. Deutsche Telekom owns roughly two-thirds of T-Mobile and has depended on the telecommunications brand for sales and earnings growth. At the same time, the German entity sees a tremendous amount of synergy savings by merging with Sprint, so it may acquiesce to some demands.
In 2014, SoftBank attempted to buy T-Mobile for Sprint, but the move was quickly dropped after U.S. anti-trust regulators intervened. Had the deal been successful, SoftBank would be the top dog and Deutsche Telekom would be a minority shareholder.
Shares Post Solid Gains
Sprint and T-Mobile shares recorded solid gains during intraday trading on Tuesday. Soon after the reports made headlines, both stocks surged.
By Tuesday afternoon, Sprint shares rose $0.64, or 8.33%, to $8.32, which is the biggest one-day gain since February. T-Mobile shares climbed $3.35, or 5.42%, to $65.15, the largest intraday ascent since the beginning of August.
Investors say that Sprint benefits the most from the agreement. For the last 10 years, Sprint has posted many quarterly losses; as of June 30, Sprint’s debt totals $12 billion, a figure that is due in the next three fiscal years. Sprint suffered losses even after SoftBank acquired the mobile operator in 2013 and helped rejuvenate subscriber growth.
Moreover, Sprint has a smaller market capitalization than T-Mobile: $30 billion compared to $51 billion.
But T-Mobile also wins in the deal because it establishes a larger wireless carrier to compete with AT&T and Verizon, though if the companies do merge, the combined entity would still be smaller than the industry behemoths.
T-Mobile COO Mike Sievert told a conference in May:
“Scale matters in this industry. We’re here to create value, we’ve shown you a value-creation case as a standalone, and the rational question for us all to be asking is: Can we turbocharge that in a way that’s advantageous for our shareholders.”
An announcement of the merger is expected to be made in the “near future.”