backtop


Print 34 comment(s) - last by kingrod98.. on May 4 at 10:33 AM

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



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

RE: NO!
By quiksilvr on 5/1/2014 9:44:31 AM , Rating: 2
Your concerns are understandable but I believe you aren't seeing the bigger picture. It appears that this merger will leave the positive aspects of T-Mobile (no-contract, free roaming, fair pricing, etc.) and the bolstered user base of Sprint.

What really helped T-Mobile was the literal billions of dollars it received from AT&T after their botched merger. Without this, there would have been no way T-Mobile could have upgraded their LTE network.

But unfortunately, as amazing as the pricing is, there needs to be a more solid user base in order to continue to provide this. Who knows? Maybe with the user base addition from Sprint, they can bring back Unlimited for $70 rather than $80 (unlikely but one can dream).


RE: NO!
By NellyFromMA on 5/1/2014 10:16:42 AM , Rating: 2
Sprint is such an awful company, and T-Mobile has really been looking positive lately.

However, this could be a great way to boost T-Mobile marketshare against ATT and VZW.

I'd personally really like the deal if it left T-Mobile execs in current decision making-positions as they are clearly superior to the Sprint folks.

The difficult part would seemingly be Sprints awful network. IIRC, they are a GSM network like VZW, whereas ATT and T-Mobile are CDMA like the rest of the world. It would not be a small feat to convert those users.

Still, big moved often entail risk. I think its exactly the type of merger to bust up ATT n VZW a bit.

I'd probably even switch from ATT to T-Mobile in support, which is ironic as a couple of weeks ago I was finding it hard to imagine what it would take for me to do so.


RE: NO!
By euclidean on 5/1/2014 10:28:52 AM , Rating: 3
If you said 'Previous Sprint Strategy' was awful, I would agree with you...since the Softbank acquisition, things over here have gotten a lot better...

Also, note that Sprint & VZW are CDMA, and AT&T & T-Mobile are GSM - but that's limited to their 3G and older services...

LTE service is compatible amongst the 4 companies (outside of the actual Band they operate on)


RE: NO!
By Solandri on 5/3/2014 3:13:54 AM , Rating: 2
CDMA is the dominant tech worldwide. Most 3G data services are CDMA, including 3G on GSM networks.

Verizon and Sprint (and a good chunk of Japan and Korea) also use CDMA for voice. GSM uses TDMA which is just horrible; it wastes a lot of bandwidth (which is why GSM was nearly 2 years behind at rolling out 2G data - they basically added a second radio for CDMA data). Fortunately voice doesn't take much bandwidth, so it doesn't impact their voice performance much.

LTE replaces CDMA for data, and as you point out it's cross-compatible (it uses OFDMA) as long as the radio supports the frequencies the carrier uses. But for backwards compatibility reasons, voice will remain as-is. Probably won't change until voice over data becomes standard.

The main reason to like GSM is the concept of SIM cards - your plan is linked to your SIM card, and you're free to pop it into any phone. If you and a friend want to swap phones for a week to test drive them before your next purchases, you can. LTE also uses the same SIM card so hopefully we'll see that spread to the CDMA voice carriers. Eventually. (e.g. The Nexus 5 has both CDMA and TDMA voice radios, as well as LTE and a SIM card. So you can use the same phone on Sprint, AT&T, and T-Mobiile. Verizon's CDMA frequencies weren't included when they failed to reach a deal with Google/LG.)


RE: NO!
By EasyC on 5/1/2014 12:19:57 PM , Rating: 2
Do you honestly think Sprint is just going to leave T-Mobile's policies in place?

Sprint will almost certainly raise the prices back up. Sprint wants contracts, and wants people to pay their prices. If Sprint wanted to be more competitive, they'd lower their prices, not buy the company threatening to kick their ass.


RE: NO!
By euclidean on 5/1/2014 1:03:45 PM , Rating: 2
Funny you say that when the prices of T-Mobile & Sprint are much closer than the prices of AT&T & Verizon...


RE: NO!
By kingrod98 on 5/4/2014 9:31:51 AM , Rating: 2
if you research you realize T Mobile is eventually we'll be bought by one company or several eventually the prices will stop because the new owners will probably be AT&T and Verizon and can't forget about sprint if sprint is not allowed to beat them to the punch it's just a matter of time but they will be only three major carriers in the United States because T Mobile parent company goal is to get rid of T Mobile even if T Mobile will be sold two more than one company leaving 3 research BAM's


"We can't expect users to use common sense. That would eliminate the need for all sorts of legislation, committees, oversight and lawyers." -- Christopher Jennings














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki