DISH CEO Charlie Ergen implies Softbank management are a bunch of "drunken fools... throwing money"

Here's some news that will make subscribers of T-Mobile U.S., Inc. (TMUS) grin -- you won't be joining Sprint Corp.'s (S) "framily" anytime soon.
I. T-Mobile/Sprint Plans Scrapped
The Wall Street Journal was the first to report on the collapse of Sprint's majority owner Softbank Corp.'s (TYO:9984) bid to buy T-Mobile and consolidate the two smaller carriers of the U.S. cellular market's "Big Four" into a single monolithic budget carrier.  The decision reportedly came during a Tuesday, afternoon board meeting.
The rejection was in some ways surprising, and in others not-so-surprising.  The surprising bit is likely due to the fact that Softbank CEO Masayoshi Son appeared on the cusp of sealing the deal with T-Mobile just weeks before the collapse.  Just a day before he decided to scuttle the bid, he met with some of America's top bankers, to secure financing for a bid, which was rumored to be around $24B USD (for Deutsche Telekom's 67 percent), valuing T-Mobile at around $36B USD -- roughly a 33 premium over current share prices.

He and T-Mobile's majority owner, Germany's Deutsche Telekom AG (ETR:DTE), reportedly had agreed to a sales price, a capital/financing structure for the deal and resulting merged firm, and a termination fee that would be adopted once the pair agreed to initiate the transaction.
Perhaps emboldened by another strong quarter, Deutsche Telekom and minority investors in T-Mobile pushed Sprint to give T-Mobile a more favorable debt structure.  Mr. Masayoshi balked at those terms, according to reports.  The pair also could see eye-to-eye in scheduling a "drop-dead date" at which the termination fee would be paid if the deal was not reached.
But the biggest problem was reportedly fears over regulatory resistance to the deal.
The U.S. Department of Justice (DOJ) and U.S. Federal Communications Commission (FCC) had already made an example out of AT&T, Inc. (T) back in 2011.  AT&T -- the market's second largest wireless carrier -- had made a bold move in mid-2011 to try to purchase T-Mobile (America's fourth largest carrier) for $39B USD.  Unmoved by AT&T's pitch, the DOJ and FCC sued Ma Bell (AT&T) and successfully dashed the takeover attempt, leaving AT&T paying T-Mobile cancellation penalties (spectrum and a lot of cash).
II. If It Isn't Broke...
A merger between Sprint (third place) and T-Mobile (fourth place) arguably would have far more synergies in some ways (given the common budget direction, etc.) than the original AT&T bid.  Further, it wouldn't likely be as anticompetitive, as it would simple be crafting a large third cellular service provider on the scale of AT&T and Verizon Communications Inc.'s (VZ) first-place Verizon Wireless network.
As the old saying goes, "If it isn't broke don't fix it."
That seemed to be the FCC and DOJ's mindset.  Both companies expressed wariness and skepticism at the deal and suggested they might sue to block it.
Regulators were concerned that approving a deal would disrupt T-Mobile rebellious "Uncarrier" model of offering much lower contract rates in exchange for having customers pay the full, unsubsidized price of the handset.  Following the collapse of the AT&T deal, T-Mobile in Sept. 2012 appointed John J. Legere -- an unorthodox and disruptive CEO -- to head T-Mobile U.S. and in Oct. 2012 announced a bid for MetroPCS, which proved successful.  Together these moves made T-Mobile the fastest growing carrier at the end of 2013.

John Legere
John Legere -- the rock star CEO [Image Source: T-Mobile USA]
Aside from the "Uncarrier" unsubsidized business model, T-Mobile also dropped data overage fees and monthly contracts, moves that won over many customers bitter at AT&T and Verizon's fines fees.
III. T-Mobile is the Biggest U.S. Cellular Winner in Q2 Earnings
T-Mobile was coming off a bright Q2 2014, just before the news that the deal had collapsed.  In Q2 it added 1.5 million net new subscribers, its fifth quarter of adding over a million new customers.  Also impressive, T-Mobile posted the largest post-paid net customer addition with 579,000 net adds.  It also added 102,000 net branded prepaid customers an additional 329,000 tablet data customers.
Its adjusted earnings before tax, interest, depreciation, and amortization (EBITDA) rose a whopping 33.4 percent to reach $1.45B USD.  T-Mobile also saw an 8 percent bump in revenue.  Last, but not least, it announced it was turning on voice-over-LTE (so called "VoLTE") to customers in many of its markets.  Boosted by AT&T's lost spectrum (from the failed bid), T-Mobile's network presence expanded to 233 million Americans in 325 markets.
In the past five quarters it's added an industry-leading 4 million postpaid customers and is closely in on third place Sprint with 50.5 million subscribers.
Sprint's results were more of a mixed bag.  Subscriptions dropped mildly from Q1 2014, but were up about 1 million devices from a year ago in Q2 2013, to reach 53.33 million subscribers.  If the pair continues on their current subscriber trends, T-Mobile U.S. could pass Sprint in total subscribers in under a year.  AT&T and Verizon also lost postpaid subscribers on a quarter-to-quarter basis; T-Mobile once again was the biggest winner.

On the flip side Sprint now has a mild lead over T-Mobile in network deployment with the completion of LTE capable of covering 254 million Americans in 488 markets.  Its project Spark is now available in 27 markets, offering ultra-high speed carrier aggregation using Sprint's 800MHz, 1.9GHz and 2.5GHz spectrum.  Sprint follow T-Mobile's lead, announcing an voice-over LTE (VoLTE) service of its own -- HD-voice -- which is available on a number of its LTE Android smartphones.
T-Mobile also rolled out carrier aggregation, and is actually available in a few more markets, albeit not at the four-band speeds (20 MHz total aggregated band) that Sprint is promising.  Currently it is offering 10 MHz + 10 MHz 4G LTE -- the most basic form of carrier aggregation -- in 43 of America's top 50 metro areas.  It also currently offers what it's billing as "Wideband LTE" 15 MHz + 15 MHz aggregation in 17 markets, with plans to expand to 26 by the year's end.
Sprint's net income -- finally positive -- operating income, and EBITDA were $21M USD, $519M UD, and $1.83B USD (up 30 percent year to year.  After so long in the red, that's sweet relief for Softbank and Sprint smaller investors.  However, it's also still behind T-Mobile.  Despite earning a slightly lower EBITDA ($1.45B USD), T-Mobile in Q2 enjoyed an operating income of $962M USD and a net income of $391M USD -- nearly 20 times what Sprint made.
Earnings would have been even higher if were not for T-Mobile starting to absorb a $250-300M USD cost of shutting down an East coast MetroPCS CDMA network and paying $2.4B USD in cash to first-place Verizon Wireless for spectrum licenses.  T-Mobile has $29.97B USD in long-term liabilities compared to $51.66B USD in assets.  That's a world better than Sprint who has $59.06B USD in debt to $84.42B USD in assets.
IV. T-Mobile Bidding Intrigue Grows as Several Sharks Circle
So Masayoshi Son has been dealt his first major setback and Deutsche Telekom -- who owns two thirds of T-Mobile U.S. shares -- is back to the drawing board looking for a new partner.  Currently T-Mobile has a market cap of $27B USD+, so anything sound of $35B USD would be unlikely to fly.  Deutsche Telekom is clearly keen on selling while the value is high, but the key question is "sell to whom".
Wasting no time after the collapse of the deal, a French carrier named Iliad SA (EPA:ILD) made an odd pass at T-Mobile, offering $15B USD for 56.67 percent of the company.  The deal was an odd offer, as it wouldn't even allow Deutsche Telekom to fully divest its stake.  Further, it drew a derisive dismissal from the German majority owner, who called the deal too low.  Deutsche Telekom rejected Iliad's request to open T-Mobile U.S.'s books, saying it would need to come back with a better offer.
Launched in 2012 in France, Iliad is the vehicle of French internet tycoon Xavier Niel.  Its Free Mobile brand is France's fourth largest carrier, with roughly a 13 percent market share.  In spirit it is a relatively good fit for T-Mobile; it has an aggressive and rebellious attitude and is growing fast in the French market on account of budget-minded offerings.
Xavier Niel hasn't given up on the idea of taking the hot asset of Deutsche Telekom's hands.  He's currently trying to build a coalition of bidders to support Iliad in making a larger offer for the stake, one that was more comparable to Sprint's prospective bid (i.e. ~$25B USD for Deutsche Telekom's 67 percent share).
Iliad may face a rival offer from the world's richest man, Mexican telecommunications tycoon Carlos Slim Helú, who is steering his wireless firm América Móvil SAB (AMOV) towards a bid.  Mr. Helú's hedge fund just cut a cool $5.9B USD deal to buy out AT&T's 8.3 percent stake in the Mexican wireless giant (Mr. Helú also owns Telmex, which enjoys a monopoly on Mexico's phone landlines).  The deal gives Mr. Helú a dominant hand with which to make more moves, as the AT&T stake commanded 24 percent of voting shares.  Hence its new owner is now the Mexican carrier's single largest shareholder in terms of voting power.
The deal also removes the majority of regulatory hiccups an América Móvil might have faced had AT&T clung to its stake.  Hence it was a win-win for AT&T, who hoped to leverage the sale to placate antitrust regulators into accepting $48.5B USD planned acquisition of DirecTV, a satellite cable firm with about 20 million subscribers.
América Móvil would be a good fit for Sprint, as well as Mr. Helú has proven a ruthless competitor and there would be potential synergies between T-Mobile, MetroPCS, and América Móvil's current U.S. discount carrier brand, TracFone.
Last, but not least there's Dish Network Corp. (DISH) who narrowly lost a bitter bidding war to Masayoshi Son over Sprint.  Still keen on establish a U.S. cellular presence, Dish's founder and top shareholder Charlie Ergen indicated he'd be watching to see how the bidding developed this time around to avoid jumping in the fray too soon.
He scoffed at Sprint's failed talks, remarking:
I wasn’t a very good poker player, but when a bunch of drunken fools were throwing money around occasionally I was able to pick up the pot at the end of the day.  My recommendation to our board would probably be let’s see what happens.
Overall Sprint shares have taken the biggest beating following the news, down by double digits during after hours trading.  T-Mobile shares are also down modestly amidst fears the dilution be lead to a lower valuation, despite T-Mobile terrific market progress.  Softbank shares also dipped.
V. Out: Sprint CEO Dan Hesse
Back at Sprint Masayoshi Son is now pushing to regear his strategy.  After for months pledging that Sprint would be unable to compete alone amidst its rising expenses, he's now fallen quiet on that claim.
What strategy Sprint plans next is anyone's guess, but for now indications seem to be that it will continue with its aggressive LTE deployment which appears to be helping the budget carrier slowly turn the corner on subscriber losses.

Former Sprint CEO Dan Hesse
But it will do that without its veteran CEO Dan Hesse, who reportedly was given the boot at Tuesday's board meeting.  Mr. Hesse was a controversial figure.  Taking the reigns in 2007, he regeared Sprint to be much more competitive in terms of network infrastructure.  While he received positive feedback from investors for this progress and his knack for securing favorable debt arrangements, he also drew criticism for his management style and some of his decisions.
Generally overly sedate, Mr. Hesse's at time overly calm style was punctuated by occasional wild and risky moves, such as his decision to "bet the farm" to get the iPhone in 2011, taking out a $7B USD loan to finance its payment to Apple, Inc. (AAPL) to gain access to the device.  That expensive scheme cost Sprint and was largely unnecessary; T-Mobile in 2013 would score iPhone access reportedly at a far lower unit cost without having to bet/sell its farm to anyone.
In many ways Mr. Hesse was like a calmer John Legere for much of 2007-2009 serving as the public face of Sprint appearing in commercials plugging its "Unlimited" data plans.  He pushed Sprint to become the first carrier in 4G technology; unfortunately that risk led to a number of mishaps.  Sprint started to adopt WiMAX.  When LTE won out as the global 4G standard of choice, Sprint was forced to start over from scratch, losing a lot of money in the process.  Further it became briefly entangled with billionaire hedge fund owner Phillipe Falcone's outlandish satellite LTE scheme, hoping to boost its nascent LTE efforts.
When Mr. Masayoshi took over last year, Mr. Hesse generally did the wise thing, demurring to his new boss of sorts.  But he seemed to struggle to find his place at the new look Sprint, constantly be outshone and outshouted by the lively T-Mobile CEO, John Legere.
VI. In: BrightStar co-owner and CEO Marcelo Claure, as Sprint's New CEO
Replacing Mr. Hesse at the CEO spot will be Marcelo Claure, a Bolivian-American entrepreneur who in 1997 founded the private-held U.S. wireless industry global distributor Brightstar Corp.  Initially focused on Latin America, BrightStar has today expanded into a company that is expected to cross the $10B USD threshold in revenue for the first time this year.

New Sprint President and CEO Marcelo Claure
Mr. Masayoshi reportedly took a liking to Mr. Claure, impressed at his personality and business acumen.  In Oct. 2013 he and Softbank pledged a $1.26B USD investment in Brightstar for a 57 percent stake (valuing the distributor at more than $2.2B USD).  Mr. Masayoshi said of Brightstar:
Brightstar has been a model of innovation, transforming from a regional wireless distributor into the world’s leading provider of services to the wireless industry and we are excited about what that will mean for the SoftBank Group.
The deal also involved Softbank paying off $600M USD worth of Brightstar's debt.  At the time of the deal Brightstar reported:
Today, Brightstar has a local presence in over 50 countries, earning revenues in excess of $7 billion and EBITDA of approximately $260 million for the 12 months ending June 2013.
That investment closed in Jan. 2014 and was followed by the Feb. 2014 announcement that Brightstar was purchasing Softbank's IT-gear distribution unit, purchasing the right to resell Softbank branded phones and accessories in Japan.  The deal is expected to boost Brightstar’s annual revenue by as much as a third ($3B+ USD) in 2014; it closed smoothly in April 2014.
In the long run, Softbank's investment in Brightstar is scheduled to eventually expand to a 70 percent sake, as the Japanese carrier slowly buys out Mr. Claure's 43 percent stake.

“Marcelo is a successful entrepreneur who transformed a start-up into a global telecommunications company. He has the management experience, passion and drive to create the strongest network and offer the best products and services in the wireless industry,” said Masayoshi Son in a press release announcing Claure's arrival as CEO. “While we continue to believe industry consolidation will enhance competitiveness and benefit customers, our focus moving forward will be on making Sprint the most successful carrier.”
Mr. Claure, 44, owns a Bolivian football (soccer) team, Bolivar.  He also was a key proponent of the One Laptop Per Child (OLPC) project, volunteering Brightstar to be one of a small group of corporate sponsors.
One thing's for sure.  Judging by the assortment of YouTube videos of Mr. Claure's energetic speeches and presentations, he's not camera shy.  Has Mr. Masayoshi found his John Legere to lead Sprint back to glory?  Only time will tell, but Mr. Claure seems to have the right stuff for the job.

Sources: WSJ, RE/Code, Bloomberg, Sprint

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