Major issues apparently unresolved
Sprint and T-Mobile US hope to announce a merger before the end of the month, according to Bloomberg. Companies often couple merger announcements with earnings releases, and T-Mobile is planning to report earnings October 23, while Sprint is scheduled for the following day. Between now and then, the companies and their agents are reportedly conducting the investigation of Sprint’s business known as due diligence.
There are still many issues that could derail a deal. For one thing, the companies still need to agree on a price. Recent reports have suggested an all-stock deal, meaning that T-Mobile US would probably issue shares in the combined company to Sprint’s shareholders, the biggest of whom is Japan’s SoftBank. In order to know the value of these shares, the two parties need to agree on an exchange ratio that dictates how many Sprint shares each T-Mobile US share will be worth at closing. That can be a tricky process since both share prices are changing daily.
Leadership of the combined company also appears to be an issue. T-Mobile CEO John Legere is the public face of the company’s hugely successful anti-establishment marketing campaign, which has helped the carrier replace Sprint as the nation’s #3 mobile network operator in terms of subscribers. Sprint CEO Marcelo Claure was handpicked by SoftBank chairman Masayoshi Son. Claure is the founder of Brightstar, a mobile device logistics provider that SoftBank acquired in 2014. SoftBank is expected to be actively involved with the merged company if a deal is completed.
In addition, the companies need to decide where to locate the corporate headquarters of the combined entity. Geographically, Sprint’s Kansas City headquarters in the middle of the country might have advantages over T-Mobile’s Seattle location.
If Sprint and T-Mobile work through all of these issues and announce a merger, they will then need the approval of the U.S. Justice Department. During the Obama Administration, the Justice Department indicated that it was not likely to approve AT&T’s proposed purchase of T-Mobile US. This time around things could be different.
The Federal Communications Commission recently reported that it finds the U.S. mobile market competitive at the current time, and some saw this report as a resource that the Justice Department can reference if it decides to approve a Sprint/T-Mobile US merger. That report estimated that 96.6% of the U.S. population had access to LTE service from three or more wireless carriers at the end of 2016.
The combination of Sprint and T-Mobile US could mean a curtailment of the persistent price wars and unlimited data offerings that U.S. consumers have enjoyed. The combined company would presumably be more competitive with Verizon Wireless and AT&T in terms of coverage and network quality, and might not rely on promotions to win customers. Consumers may pay more for wireless service, and as wireless service revenues increase the carriers could have more free cash flow to invest in 5G technologies as these become available.
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