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Sprint shares rise on unconfirmed cable talks pre-empting T-Mobile merger work

Sprint shares jumped 5.7 percent Tuesday morning on unconfirmed reports the company is talking with two cable giants rather than wireless rival T-Mobile about a deal.
Sprint shares jumped 5.7 percent Tuesday morning on unconfirmed reports the company is talking with two cable giants rather than wireless rival T-Mobile about a deal.

Sprint shares rose 2.12 percent Tuesday on unconfirmed reports the company is talking with two cable giants rather than wireless rival T-Mobile about a deal.

Markets reacted to news late Monday that Sprint has been talking exclusively with Comcast and Charter Communications for about a month. Investors had been working under the assumption that Sprint and T-Mobile were pushing toward a merger agreement.

In the morning, Sprint shares jumped 45 cents to $8.47, but they closed at $8.18, an increase of 17 cents.

Analysts noted that the Wall Street Journal’s report lacked details but said its central message was that the Overland Park-based wireless carrier has many options.

“Sprint isn’t as desperate as many thought, and T-Mobile didn’t have the leverage that most seemed to assume,” analyst Jonathan Chaplin of New Street Research said in a note to clients.

The talks confirm Sprint Chairman Masayoshi Son’s comments a month ago that Sprint had many options and was in no rush to decide whether to be a buyer, seller or merger partner and that it saw options with companies other than T-Mobile.

A week later, however, Son was back in T-Mobile mode, calling a deal with the rival wireless carrier a “first priority.”

Merger and deal talks in the wireless industry had been on hold for more than a year before a federal quiet period ended in late April. Although a merger between Sprint and T-Mobile seemed most likely to emerge, analysts were looking at many possible combinations.

Moreover, Sprint and the cable companies could be talking about various plans.

Less likely would be an outright purchase of Sprint, analysts said.

The cable companies more likely are considering an investment in Sprint’s network that would give them access to sell their own wireless service using an upgraded Sprint network.

They already have a similar access deal, called an MVNO for mobile virtual network operator, with Verizon. Analyst Mike McCormack at Jefferies said the cable companies may be looking for a better deal and noted that the Verizon deal was struck before unlimited data plans entered the market.

The addition of cable talks leaves Sprint’s plans unclear, with analysts noting that a merger with T-Mobile remains in the mix. It may become easier to negotiate if the cable companies struck a network sharing deal, called an MVNO, with Sprint.

Analyst Walt Piecyk of BTIG Research told clients that T-Mobile’s merger team likely is struggling with terms of a Sprint purchase because Sprint shares already traded at premium prices relative to T-Mobile.

“To be clear, a cable/MVNO deal with Sprint should not preclude a Sprint/T-Mobile merger and might in fact offer the extra economics needed to entice DT (T-Mobile parent firm Deutsche Telekom) into a deal,” Piecyk wrote.

Chaplin noted that a cable deal has an important edge over the widely anticipated Sprint merger with T-Mobile. Regulators are expected to be skeptical of a merger of two wireless carriers and more likely to approve a cable deal with a wireless operator.

Then, he noted that Comcast and Charter were in these talks together.

“While a single cable company entering into any transaction with Sprint has a strong likelihood of regulatory approval, a joint bid raises questions that add some uncertainty,” Chaplin wrote.

Mark Davis: 816-234-4372, @mdkcstar

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