Sprint is having “preliminary conversations” with the owners of T-Mobile about a possible merger, according to a report by Bloomberg News.
The report cited people familiar with the talks but included no details about the discussions.
Earlier this week, Sprint chairman Masayoshi Son had said a merger with T-Mobile would be a “first priority” as the Overland Park-based wireless company sought potential partners while the telecommunications industry is looking to strike deals. Son had emphasized that a T-Mobile merger is not Sprint’s only option.
Bloomberg’s report said the “informal contact” is between Sprint and its parent company, Tokyo-based SoftBank Group Corp., on one side and T-Mobile and its German-based principal owner Deutsche Telekom on the other. Son founded and heads SoftBank as its CEO.
The report said that neither side had hired investment bankers “formally” but that these dealmakers were “jockeying for roles” in any deal that may develop.
This means the talks are in the earliest stages, but it is equally clear where they are heading. It’s about more than which company buys which and the price tag attached.
Much of the value of the deal depends on building a bigger and stronger rival to Verizon and AT&T, which are industry leaders, said Ben Gomes-Casseres, professor of strategy at the Brandeis University International Business School in Waltham, Mass. His book “Remix Strategy” argues that business combinations have to obey three laws to be successful.
It means figuring out how to remix the two businesses’ assets into something more than the two companies represent separately. One plus one equals three is the idea, Gomes-Casseres said.
“When you talk about a merger like this, it’s a little artificial who buys whom. They’re basically putting their assets together,” Gomes-Casseres said. “In the end, when you combine them, you have to manage them well enough so they create that value that’s promised.”
The outcome of that remix weighs heavily on both companies’ workforces, suppliers and communities on which they have significant economic impact.
Sprint and SoftBank had tried to acquire T-Mobile three years ago but dropped those plans as federal regulators made clear they were not interested in seeing the No. 3 and No. 4 carriers combine.
Since then, T-Mobile has grown its subscriber base substantially, outpacing gains of larger rivals AT&T and Verizon and surpassing Sprint.
Speculation about a wave of possible mergers, involving wireless carriers, cable companies and others, has been rampant.
Key players had been prevented for more than a year from having such talks because of a federal auction of wireless airwaves licenses. That ban ended last month.