A widely expected deal that will see US operator Sprint acquire its competitor T-Mobile USA is nearing completion, according to a number of reports citing inside sources. News agency Bloomberg said that an agreement on the price, capital structure and termination fee is close and that the deal would value T-Mobile at $40/share, or roughly $31bn. At the time of writing T-Mobile USA was trading at $35.20. The agency suggested a deal could be announced in July.
Such a deal would create an operator with the same scale as market leaders Verizon Wireless and AT&T. A combined Sprint-T-Mobile would have 103.53 million customers according to the latest figures from Informa’s WCIS Plus.
In May it was reported by the Wall Street Journal that German incumbent and T-Mobile parent Deutsche Telekom (DT) was demanding a $1bn break-up fee be written into any deal with Sprint, which is majority owned by Japan’s Softbank. The payment, from Sprint to Deutsche Telekom, would be required should an agreed deal be derailed; perhaps blocked by regulatory or competition authorities.
DT’s enthusiasm for the pre-nup is based on rewarding experience. In 2011 it walked away from the collapsed $39bn takeover of T-Mobile USA by AT&T with $3bn in cash, substantial spectrum assets and a favourable roaming agreement. It was able to invest that sum into its network and has performed well in subscriber terms since.
And yet the firm’s financial performance has not reflected this trajectory. In Q1 this year, despite claiming to have taken “virtually all of the industry phone growth” in the period, T-Mobile USA posted a $154m loss, down from a $106m profit for the same period in 2013. The firm cited increased customer acquisition costs as having a significant impact on its bottom line.From June 2012 to March 2014 the operator increased its subscriber base by 48 per cent, from 33.17 million to 49.08 million, according to figures from Informa’s WCIS Plus. Over the same period Sprint’s subscriber base dropped by 2.8 per cent to 54.45 million, while AT&T’s grew 10.3 per cent to 116.04 million and Verizon Wireless’ by 9.8 per cent to 121.29 million.