Nation & World

T-Mobile to buy Sprint for $26.5 billion

If approved, the deal would reduce the U.S. market to three big competitors

Bloomberg

John Legere (left), CEO and president of T-Mobile US, and Marcelo Claure, CEO of Sprint, are interviewed on the floor of the New York Stock Exchange on Monday.
Bloomberg John Legere (left), CEO and president of T-Mobile US, and Marcelo Claure, CEO of Sprint, are interviewed on the floor of the New York Stock Exchange on Monday.

T-Mobile US agreed to acquire Sprint for $26.5 billion in stock, a wager that the carriers can team up to build a next-generation wireless network and get a jump on industry leaders Verizon Communications and AT&T.

The deal follows years of deliberations between Deutsche Telekom, the German company that controls T-Mobile, and SoftBank Group, the Japanese owner of Sprint, and comes about five months after an earlier merger attempt collapsed.

The combination would reduce the U.S. wireless industry to three major competitors from four, ensuring heavy scrutiny from regulators.

“We are going to have an impact on America,” John Legere, the T-Mobile boss who will serve as CEO of the combined entity, said on a conference call Sunday. Rivals such as Verizon, AT&T and Comcast will have to respond, he said.

“We are going to drag the rest of the players kicking and screaming to the prize, which is American leadership” in fifth-generation wireless networks.

Operating as T-Mobile, the company would have about $74 billion in annual revenue and 70 million wireless subscribers.

Verizon is the largest U.S. carrier with $88 billion in 2017 wireless revenue and 111 million subscribers, and AT&T would be No. 2 with $71 billion in wireless revenue and have 78 million regular subscribers.

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The combination values each Sprint share at 0.10256 of a T-Mobile share, the companies said in a statement Sunday, or about $6.62 a share based on T-Mobile’s Friday closing price of $64.52.

The implied enterprise value is about $59 billion for Sprint and $146 billion for the combined companies, according to the statement.

Under terms of the deal, Deutsche Telekom will end up with a 42 percent ownership stake while SoftBank will have 27 percent. T-Mobile’s Mike Sievert will be president and chief operating officer. The German company’s chairman, Tim Hoettges, will serve in that role at the combined company, and the board will include SoftBank CEO Masayoshi Son.

The companies said they expect synergies of about $43 billion based on net present value, with more than $6.5 billion on a run-rate basis, with most of the savings coming from network spending.

Combining networks will eliminate future costs to upgrade and operate one of the networks, and by consolidating overlapping properties the new company can vacate unnecessary antenna towers.

Neville Ray, T-Mobile’s chief technology officer, said the new company planned to decommission 35,000 cell sites.

Unlike other mergers that achieve cost savings by eliminating duplicate staff, the executives plan to keep dual headquarters in Bellevue, Wash., and Overland Park, Kan.

Sievert said the combined worldwide workforce of about 240,000 employees will increase once the merger is complete. Most of the new jobs will be network related, many in rural areas where network expansion is planned.

The deal marks the third time that SoftBank’s Son has acted on his long-held plan to combine Sprint and T-Mobile. Previous negotiations broke down after the two sides couldn’t agree on how to structure control of the combined entity, people familiar with the matter said at the time.

The two carriers have complementary wireless spectrum that may be a strategic advantage as the companies build a faster fifth generation or 5G network. T-Mobile controls a large portfolio of lower-band airwaves that can travel long distances and pass through walls and windows.

Sprint has the largest U.S. holding of higher-band, 2.5 gigahertz spectrum that can handle more data capacity but over limited distances.

The companies dashed a previous plan to merge in 2014 after meeting resistance in Washington, D.C. Regulators said that a four-competitor wireless market fosters more choice, price competition and innovation, which proved to be largely true.

Consumers will be the losers if T-Mobile and Sprint are allowed to merge, said Gigi Sohn, a fellow at the Open Society Foundations and former aide for the Federal Communications Commission.

“Both companies have been feisty competitors to the two biggest national mobile wireless carriers, Verizon and AT&T” and a combination will lead to less choice for consumers, Sohn said.

Sprint and T-Mobile will try to convince regulators and possibly President Donald Trump that the combination will lead to bigger investments in 5G networks and put pressure on larger rivals, even though consumer benefits aren’t obvious and heavy job cuts are expected.

The Trump administration currently is trying to stop AT&T’s $85 billion takeover Time Warner, saying the deal will lead to higher pay-TV prices.

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“Like other companies, T-Mobile and Sprint are confident the merger will be approved and they are special and shouldn’t be judged like other mergers,” said Roger Entner, an analyst with Recon Analytics. He’s skeptical that jobs won’t be cut, saying that “those kinds of synergies don’t happen without layoffs.”

Brian Hart, a spokesman for the FCC, declined to comment.

For Sprint, which hasn’t had a profitable year in more than a decade, the merger is a bailout. The company is four years into a go-for-broke turnaround effort launched when Claure took over as CEO and started slashing prices on phones and offering half-off service plans to stop customer losses.

But the price battles only further fueled the cash burn. The need for more and more financing took the company back to the junk-bond market in February after a three-year absence.

In March, Sprint sold a second round of airwave-backed bonds.

Under Legere’s leadership T-Mobile became the fastest growing carrier gaining more than six million subscribers over the past three years, though the pace of that growth has steadily slowed.

T-Mobile has forced the industry to try to match its sales techniques such as offers that include phone financing, free video streaming and unlimited data plans.

For SoftBank, the transaction puts the mobile-service empire that billionaire CEO Son built in a better position to compete with U.S. cable companies by offering high-speed wireless internet connections and streaming video.

The combination also gives Deutsche Telekom a stronger vehicle to expand in the profitable U.S. market.

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