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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
[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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Who's network is bigger/more robust?
By weilin on 5/1/2014 4:17:02 AM , Rating: 2
I think I could be OK with this merger... I can see how this could benefit me.

For starters, Deutsche Telekom is a bit cash strapped right now, they need money to defend their home turf (Germany) and thus their investment in t-mobile isn't their priority. Softbank has money they're willing to pour into the company; money the company needs to build out infrastructure. The investment from Softbank would allow T-Mobile/Sprint to have the deeper pockets necessary to finally fix their coverage gaps and take on Verizon/AT&T.

If the merger is allowed to happen, I would expect the regulatory group to expect them to develop all their spectrum they're sitting on within two years or the feds should seize the undeveloped bands.

However, I would expect the T-Mobile execs to be in charge. They seem to be moving the industry in the right direction. If it was strictly a money question, it seems like Softbank has plenty to dump into Sprint. The cost of T-Mobile would buy a lot of Sprint towers... However, pouring money into an incompetent management team is the same as flushing it down the toilet... I suspect this takeover is more for T-Mobile execs than the actual equity in the company considering they're essentially will be tossing much of it in the near future (see paragraph below).

One thing that concerns me is the fundamental difference in infrastructure the 2 companies have for pre-4G connectivity. Yes both are rolling out GSM based 4G LTE. But in the meantime, the costs of operating essentially two non-4G networks would be quite a burden and they would want to decommision one of them... The question is, which one? Does anyone know which company's infrastructure is actually more robust right now? I would like GSM to ultimately win out becuase it's the international standard as well as the basis of 4G LTE (also, unlocked Nexus devices!). However, since Sprint is currently the larger of the two companies, theirs should, in theory, be better... You can't mix and match from city to city and there is hardly any (none?) GSM + CDMA SOCs available right now. which one will they standardize on...

As for the name... Sprint Mobile?

RE: Who's network is bigger/more robust?
By VoodooChicken on 5/1/2014 7:47:39 AM , Rating: 2
Sprint's biggest blunder was buying and carrying Nextel. A T-Mobile consolidation would make for another costly and time consuming culling, however, I don't think it would be as bad as shutting down Nextel.

As for names, about SprinT?

By danjw1 on 5/1/2014 9:40:23 AM , Rating: 2
Given how customers feel about the Sprint brand right now, I think just going with T-Mobile would be best.

The big hurdle I see is that Sprints network is CDMA and T-Mobile is GSM. This means that if they merge the brands, they really need to move customers from one technology to another.

By kingrod98 on 5/4/2014 8:59:38 AM , Rating: 2
research sprint and tmobile merger is nothing but up up for the consumer Softbank CEO is the third richest man in Japan Japan is a extremely huge country get the message Softbank intense on taking a lost in order to break the monopoly in the United States that consist of Verizon and AT&T Softbank CEO have the financial backing to do a better job in the United States with breaking a monopoly then he did in Japan fax the cell phone providers in the United States have contracts with britestar distributing company owned by Sprint get the message Softbank is building a fortress around sprint to top it off we as the consumer of all cell phone providers with in the major 4 must have T Mobile another budget company to pull it off n the money hog at&t and Verizon have no other choice but to reduce the price or else lose customers shareholders take a loss not the consumer also Softbank CEO is assisting the smaller carriers in the United States with developing LTE to allow customers who cannot afford postpaid plan to have the same access and everyone else research also in 2012 The FCC and the Department of Justice considered reducing roaming rates for smaller carriers to use the larger carriers network Verizon try to stop this from going through it doesn't matter what cell phone provider you are with even if you or AT&T and Verizon customers we still need this merger for y'all price to go down as well research Hello BAM's

By euclidean on 5/1/2014 10:23:48 AM , Rating: 2
My thought on the network piece....

T-mobile's 4G LTE is great within Cities/Heavily populated areas. Their 3G service is also pretty great.

Sprint's 4G LTE service (where launched, which is quite a few unexpected areas in my region)is expanding in many rural areas along with cities - it's good, but not great. Their 3G service, though, sucks.

As far as Phone service, Sprint has T-Mobile beat hands down outside highly populated areas. In fact, as far as Voice coverage goes, they're almost identical to Verizon.

With that said, I'm not sure which direction it would go. I can say, however, in recent articles regarding Sprint's rollout of Spark (combining of different bands to get Voice-over-LTE, 50mbps+ data, etc.), there may be potential to roll it all together - they do plan on having 100 major markets covered by the end of 2016. This article speculates that such a merger wouldn't be complete until then anyways, so if Spark wraps up early (with the increase in available towers/bandwidth from T-mobile in the LTE space), then the only focus moving forward would be to expand Spark to the rest of Sprint's coverage area (a.k.a 3G Rural areas that T-mobile doesn't have coverage to begin with).

Honestly, the only reason I'm on Sprint today is that T-mobile is the same cost I pay today for less service - I have 4G LTE (~10mbps not T-Mo speeds) and I have coverage in many rural areas that T-mo does not.

If they combined, it would be the best of both worlds...Verizon is way to expensive, but has great coverage/service...AT&T is as expensive as Verizon, but you might as well be on Sprint's network...

By Solandri on 5/3/2014 3:45:57 AM , Rating: 2
One thing that concerns me is the fundamental difference in infrastructure the 2 companies have for pre-4G connectivity. Yes both are rolling out GSM based 4G LTE. But in the meantime, the costs of operating essentially two non-4G networks would be quite a burden and they would want to decommision one of them...

I dunno. The Nexus 5 shows you can put out a combination GSM+CDMA phone at a competitive price point. Just have the phone connect to whichever signal is best, whether it be a Sprint tower or a T-Mobile tower.

As 3G data gets phased out for LTE, the only difference between the two will be voice (CDMA for Sprint, TDMA for T-Mobile). And voice doesn't take much bandwidth so operating both techs for voice on every tower wouldn't seem to be that expensive compared to LTE.

"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive

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