How’s this for a holiday season price check? Renewed speculation about Sprint’s interest in bidding for rival T-Mobile US got around to the price tag: $93.4 billion.
Sprint’s original pursuit of T-Mobile was shot down by the Obama administration a couple years ago. Now that Donald Trump is president-elect, speculation about a deal is swirling again. This time, fans of a Sprint/T-Mobile merger expect a Republican administration to be more receptive.
Driving home the point, Sprint chairman and Tokyo billionaire Masayoshi Son warmly welcomed the president-elect in the Trump Tower lobby last week by promising to invest heavily in U.S. businesses and jobs.
Sprint declined to comment. And there is no certainty that the Overland Park-based wireless carrier will pursue a merger or that the Trump administration would approve one.
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But at least we have a price tag. Wells Fargo Securities analyst Jennifer Fritzsche penciled out that monster number.
In a note to clients Monday, Fritzsche said Sprint would have to take on T-Mobile’s $33.4 billion in debt and come up with $60 billion more to buy out T-Mobile’s shareholders. The total price tag on T-Mobile: $93.4 billion.
We’re talking about a bigger ticket than when AT&T purchased satellite-television operator DirecTV, $67.1 billion counting debt. Bigger than when Charter Communications dealt for cable operator Time Warner Cable, $81 billion counting debt. It’s nearly as much as AT&T faces in its bid for media and entertainment giant Time Warner, $108.7 billion counting debt.
Why so much?
Because T-Mobile has been wildly successful in attracting new subscribers, improving its wireless network and thinking up features that its rivals have decided to copy.
Any buyer also would have to pay a premium to the current stock market price to gain control. Fritzsche said T-Mobile stockholders would collect $72 a share, compared with T-Mobile’s $56.14 share price before her report.
Wouldn’t it make more sense for T-Mobile to buy Sprint?
No. Just the opposite, according to Fritzsche’s math. Sprint’s stock already is high priced and its debt burden heavy compared with the business the buyer would gain. In short, Sprint is still in a turnaround but is being priced on gains not yet cemented.
“Therefore, we believe a transaction would only make economic sense if Sprint is the acquirer,” Fritzsche wrote.
On the other hand, Sprint might not get everything it hoped for in a blockbuster deal to buy T-Mobile, said Roger Entner, an industry analyst at Recon Analytics.
A sale would leave T-Mobile’s top executives with sudden and sizable windfalls based on their existing stock options and shareholdings, Entner said, particularly its CEO, John Legere.
“Legere, I think he’d take the money and run,” Entner said. “He would walk out as the genius who turned around T-Mobile.”
Sprint also might not get the valuable T-Mobile brand in a deal. The brand belongs to Germany based Deutsche Telekom, which owns most of T-Mobile US and uses the T-Mobile name in other markets such as Poland, the Netherlands and the Czech Republic.
Take away T-Mobile’s management and the T-Mobile brand, and the $93.4 billion price tags looks steeper than before.
To be clear, Sprint’s parent company, SoftBank Group, essentially would be the buyer. It would need to support Sprint’s effort to raise the $60 billion.
Which is why Trump’s meeting a week ago with SoftBank’s Son grabbed so much attention. Their public session in the Trump Tower lobby in New York included Son’s pledge to invest $50 billion and create 50,000 jobs in the United States. Son said he made the pledge knowing Trump would deregulate a lot.
Add this to the mix: Sprint CEO Marcelo Claure has had warm things to say about T-Mobile, which surpassed Sprint to become the No. 3 U.S. carrier early on Claure’s watch. On Twitter, Claure told T-Mobile’s finance chief that he was “trying to follow some of your footsteps.”
Claure even tweeted this week that T-Mobile’s Legere had been “doing a great job” and deserved recognition as being a more powerful person in the U.S. telecommunications industry.
There are other alternatives to a Sprint bid for T-Mobile. Fritzsche noted that a Trump administration may mean that Sprint and T-Mobile each could be buyout targets. She didn’t list possible bidders, but Comcast has been mentioned as a logical T-Mobile suitor.
In the Kansas City area, the costs of such a merger could be higher in another way.
Sprint still ranks among the largest private employers in the area, provides broad corporate support to the community and does business with other businesses here.
Fritzsche said a merger with T-Mobile makes sense only if it produced $4.5 billion in cost savings in its first three years. First on her list of cost-saving moves: “headcount reduction.” A battle for jobs would ensue.
Kansas City and Seattle, where T-Mobile is based, would be in a battle for the merged headquarters. The last time that happened, Reston, Va., became Sprint’s official headquarters with the Nextel merger. It moved back to Overland Park in 2008.
These are many of the same calculations the Kansas City area faced when Sprint was pursuing T-Mobile in 2014. Some were ready to look at the costs as perhaps the price of salvaging a struggling Sprint.