Rumors about a potential merger of U.S. wireless carriers Sprint and T-Mobile have continued unabated since the end of the FCC’s auction quiet period, egged on by executive comments from both sides.
T-Mobile CFO Braxton Carter last month said Sprint would be “a huge prize” and bring with it “hard synergies” as well as a “treasure trove of 2.5 (GHz) spectrum.” That sentiment was echoed by Sprint CEO Marcelo Claure the following week when he said it was “pretty amazing” to think about what could be done by combining the two wireless “mavericks” to compete with the likes of Verizon and AT&T on a larger scale.
Executives from both Sprint and T-Mobile’s parent companies – SoftBank and Deutsche Telekom – have also joined in the fray. SoftBank CEO Masayoshi Son indicated at the start of May that T-Mobile was his “first priority” for a Sprint merger. And DT Chief Executive this week hinted the U.S. regulatory environment “looks good” for a deal. That marks a chance from three years ago, when Sprint and T-Mobile dropped merger talks after regulators signaled they wouldn’t approve a deal.
But while deal talks are pretty much a sure thing at this point, what has remained unclear is what a potential deal might look like. Son in February noted SoftBank used to see itself as only a buyer, but was newly open to being a seller and cutting other types of deals as well.
According to the latest take from Wells Fargo Senior Analyst Jennifer Fritzsche, Sprint is most likely to be a seller. Fritzsche predicted a purchase price of $10.84 per share for Sprint, with T-Mobile taking on Sprint’s $41 billion debt. While Fritzsche noted the transaction might not be immediately accretive to free cash flow thanks to some $10 billion in integration costs spread over three years, she said long-term synergy benefits would likely be substantial.
“We now believe TMUS/DT should be the perceived buyer with Sprint/Softbank retaining a minority position in the combined entity,” Fritzsche wrote in a Wednesday note. “If approved, we believe a combined S/TMUS would be a powerful wireless competitor with a deep spectrum position. We agree with TMUS’s comments that the synergies are probably higher than many realize.”
The upside for free cash flow and shares would likely come around 2021, she added, with annual synergies estimated at around $5 billion.
Though Fritzsche and the carrier execs seem to believe the chances of a deal look favorable, others have been less optimistic. MoffettNathanson previously indicated such a merger would be “hard to sell” both to T-Mobile parent company Deutsche Telekom and the Department of Justice. And BTIG’s Walter Piecyk last month said the “biggest question” – assuming Sprint/SoftBank as a buyer – was whether the carrier would be able to come up with an acquisition offer “attractive enough for Deutsche Telekom.”
“With no news in May, it’s likely that Sprint’s leverage will only decline as the benefits of price cuts run their course and their customers feel the impact of their low capital investment,” he wrote.
