T-Mobile will reject French bidder, reports say

T-Mobile US Inc. plans to reject a $15 billion buyout deal from a French wireless company, according to published reports.

Iliad SA, which is the fourth-largest carrier in France, had offered to buy a 56.6 percent stake in America’s No. 4 wireless company for $33 a share.

That offer surprised many in the industry who have been waiting for a $32 billion bid from Sprint Corp. and its Japan-based parent company, SoftBank Corp. That offer is expected to be in the neighborhood of $40 a share, though the companies have not acknowledged any intentions to make a bid.

Bloomberg News echoed other published reports of T-Mobile’s expected rejection of Iliad’s bid by citing a source it did not identify. A report from the Financial Times cited two sources it did not name.

Separately, Reuters is reporting that its sources say Iliad is talking with investor groups and other companies to join its effort. The report lists Dish Network, Cox Communications and Charter Communications, the Ontario Teachers Pension Plan and Singapore’s sovereign wealth fund, without identifying its sources.

Iliad’s bid drew doubts from many in the wireless investment world. The company, with 8.6 million wireless subscribers and 14.3 million total customers, is substantially smaller than T-Mobile, which has 50.5 million subscribers.

Combining the companies on opposite sides of the Atlantic Ocean also would not be expected to generate the significant cost savings readily apparent from a merger between two U.S. carriers.

Iliad’s bid last week also came the same day that Wall Street analysts began to question whether T-Mobile ought to be considering a sale.

Two analysts put the point to T-Mobile chief executive John Legere last Thursday morning during the traditional conference call that followed the company’s report of second quarter results.

The news was that T-Mobile has lots more new subscribers, and Legere promised that more are coming and furthermore that this is profitable and sustainable growth for the company.

Legere’s good news followed Sprint’s update last Wednesday that showed continued customer losses and produced a promise to do better from here on.

It had Wall Street analysts asking Legere why T-Mobile would even want to merge now.

John Hodulik of UBS Securities LLC was the first to raise the point about 40 minutes into the conference call, a replay of which is available from T-Mobile.

“Obviously, there’s been a lot of talk about the possibility of a sale of the company. Given all the momentum you have and the visibility you have in terms of keeping that momentum going, you know, why consider a sale now to potentially a company that doesn’t have anywhere near the momentum, if you know what I’m saying?”

Legere sidestepped the merger question, keeping to the silence at both companies.

“I just want to point out that you keep talking about it. We have never talked about it,” Legere told Hodulik.

About four minutes later, Jonathan Chaplin at New Street Research pressed the point again. He noted that the wireless business benefits from scale, that it helps greatly to have more paying customers to offset the costs of building and maintaining a national network.

“I just want to hit on John’s question again, why consider a deal now, when the primary driver of a deal would be to gain scale and you’re gaining scale organically at the expense of somebody you might merge with?”

More sidestepping from Legere. But he did say this:

“We see a path forward to be highly successful as a standalone company. But we also know that we could significantly accelerate that growth and create an even higher level of competition in the U.S. wireless industry by various forms of accelerating this platform.”

In short, a merger makes sense, though doing one now isn’t such a priority.

Craig Moffett of MoffettNathanson Research LLC explained that reasoning in his report on T-Mobile’s second-quarter results titled “T-Mobile: Why the Urge to Merge?”

Moffett noted that waiting works in T-Mobile’s favor as the two sides negotiate the terms of a deal.

“T-Mobile’s value is rising while Sprint’s is falling; indeed, at the current run rates, T-Mobile will pass Sprint in the number of postpaid phone subscribers in less than a year.”

This story was originally published August 5, 2014 at 2:01 PM with the headline "T-Mobile will reject French bidder, reports say."