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The players behind the scenes are Deutsche Telekom and Softbank; T-Mobile would likely be put in charge

Bloomberg is reporting that Softbank Corp. (TYO:9984) has secured enough financing to cover a bid for T-Mobile U.S. Inc. (TMUS) in June or July in a move that could shake up the U.S. wireless network race.

I. Sprint, T-Mobile Reinvigorated by Bold 2012 Moves

The roots of the deal lie in T-Mobile U.S.'s current majority owner's desire to sell the brand, and Softbank's desire to expand its American holdings.

Softbank made a name for itself in Japan by its strong marketing, aggressive acquisitions, and dedication to infrastructure improvement.  But faced with a slowly shrinking market in Japan (whose population is expected to shrink in half by around 2100 due to low birth rates) it in Oct. 2012 made a bold move bidding for Sprint Nextel.  After a bidding war with DISH Network Corp. (DISH) it emerged victorious last year and Sprint Corp. (S) was born, with Softbank holding 80 percent of shares and public investors holding the remaining shares.

SoftBank's Son
Softbank and its CEO Masayoshi Son outbid DISH Network to become the majority owner of Sprint last year. [Image Source: Reuters]

The deal has produced a remarkable turnaround at the money-losing Sprint, which before the deal was teetering dangerously close to bankrupcy.  Now it's almost cash-neutral and has stopped its bleed in subscribers.  Sprint is currently in third place in the U.S. market with about 54 million customers.

T-Mobile U.S. was formed over a decade before in 2001, via Deutsche Telekom AG's (ETR:DTE) purchase of Powertel and Voicestream (a successor to the defunct Western Wireless Corp.).  For nearly a decade and a half Deutsche Telekom has managed the brand, which it owns 67 percent in.  And that brand was struggling.

Deutsche Telekom
Deutsche Telekom has owned T-Mobile U.S. since 2001. [Image Source: MobiFrance]

But 2012 proved a pivotal turning point for T-Mobile -- the fourth largest wireless carrier -- much like it did for Sprint.  Deutsche Telekom 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.  Together these moves made T-Mobile the fastest growing carrier at the end of 2013.  T-Mobile currently is profitable and has a little over 46 million customers.

But Deutsche Telekom is in the opposite of Softbank's position. It enjoys a strong, but hypercompetitive market back home.  So with T-Mobile U.S. shares riding on epic highs, it wants to sell now and spend its proceeds on financing network expansions to keep it back home in Germany (a market which does not face the population shrinkage concerns as Japan's does).

II. A Bid Expected to Come After All

For a time it seemed unlikely that Softbank (via its proxy, Sprint) would make a bid for T-Mobile.  Antitrust regulators have already made it clear they oppose such a deal as they fear it could limit competition and stall both companies' momentum.  But it now appears that Softbank/Sprint will indeed pursue such an acquisition.

Bloomberg reports that Softbank (via Sprint) will likely make a bid in June or July for its smaller rival.  The decision comes following a meeting Sprint Chief Financial Officer Joe Euteneuer and Treasurer Greg Block had with six top banks to ensure that the deal could receive financing.

Bank of America
Bank of America, JP Morgan Chase, and Goldman Sachs are among the U.S. banking financiers of the supposed pending Softbank offer. [Image Source: AP]

No one knows how much the deal will be worth.  T-Mobile currently has a market cap of $24B+ USD, including the jump in shares after news of the strengthening acquisition interest.  T-Mobile U.S. does hold $8.7B USD in net debt, but it also recently received $6B USD in cash and spectrum from AT&T, Inc. (T) following its failed 2011 takeover attempt.  Bloomberg writes:

Deutsche Telekom wants as much cash as possible in the deal, another person said.

The deal could stretch to $40-50B USD -- part of which will likely go to T-Mobile for continued network expansion.  Such a deal would be well north of the $16.6B USD in cash that Softbank gave Sprint Nextel shareholders for its stake (along with an additional $5B USD for network expansion in a deal worth ~$22B USD).  In fact, T-Mobile U.S. could cost Softbank twice what it paid for Sprint Nextel.

Reportedly Sprint met with Goldman Sachs Group Inc. (GS), Citigroup Inc. (C), JPMorgan Chase & Comp. (JPM), Mizuho Financial Group Inc. (TYO:8411), Bank of America Corp. (BAC), and Deutsche Bank (Deutsche Boerse AG (ETR:DB1)).

III. T-Sprintle: Likely Led by Legere, With More T-Mo Flavor, Less Sprint

The resulting company would a be a behemoth, with 110 million customers, surpassing even Verizon Wireless (a wholly owned subsidiary of Verizon Communications Inc. (VZ)).  Verizon Wireless ended Q1 2014 with 103.3 million customers, while AT&T has around 78 million subscribers in the U.S.

While one cannot discount the risk of both T-Mobile and Sprint losing their newfound momentum amidst a merger, one piece of good news is that it sounds like Softbank is leaning towards putting T-Mobile's leadership more heavily in charge of the merged entity.  It reports:

SoftBank and Deutsche Telekom AG (DTE), which owns about 67 percent of T-Mobile, are still speaking with each other to determine who would run the company, the people said. T-Mobile CEO John Legere is the leading candidate, one of the people said. 
 
T-Mobile CEO John Legere, would likely head the merged brand. [Image Source: NYT]

That's bad news for Sprint CEO Dan Hesse, but arguably good news for U.S. customers who have rated T-Mobile much higher in brand satisfaction than Sprint in recent quarters.

And that would likely mean that the merged entity might behave more like T-Mobile in terms of strategy, regardless of whether the plan involves merging the brands under one name (Sprint? T-Mobile? T-Sprintle?) or continuing to operate under separate names (similar to the MetroPCS acquisition and merger).

T-Mobile wide
Sprint
[Image Source: Flickr (top); Getty Images (bottom)]

Softbank is reportedly well aware U.S. antitrust regulators concerns, and is preparing a lengthy defense of the deal.  Given that regulators already shot down AT&T's argument -- effectively that competition might be harmed a little, but not a lot -- Softbank and its CEO Masayoshi Son will likely have to convince regulators that competition would actually improve under the scenario.

Even if approval from U.S. government regulators is won, a deal would likely take until late 2015 -- or even 2016 -- to wrap up given that it would require the approval of shareholders of all four companies (Sprint, Softbank, T-Mobile U.S., and Deutsche Telekom).

Source: Bloomberg



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RE: NO!
By hpglow on 5/1/2014 1:50:10 AM , Rating: 2
Massive debt.


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