Update 1/18: Softbank and Deutsche Telekom are reportedly in talks about a potential Sprint takeover of T-Mobile, but a deal is not expected in the immediate future.
Sprint (S) and its aggressive new parent company Softbank appear to be moving forward with plans to try to buy T-Mobile US(TMUS), and Deutsche Telekom also looks ready to make a deal. According to The Wall Street Journal, two unnamed banks have given Sprint financing proposals.
Meanwhile T-Mobile US parent Deutsche Telekom has reportedly transferred its 67% stake in T-Mobile US from a German holding company to a Dutch holding company. Deutsche Telekom said the move was made to simplify its business structure, but the timing has fueled speculation that the German telecom giant may be ready to part ways with T-Mobile US, for the right price.
Sprint’s offer, if it materializes, is expected to be roughly $50 billion. About $30 billion of that represents equity in T-Mobile US. T-Mobile US has roughly $20 billion in debt that would be refinanced as part of a takeover. The company’s market value is hovering around $24 billion now.
T-Mobile US shares have risen during the last 30 days, but many investors remain doubtful that a deal will really come together. Forging an agreement between Softbank, Deautsche Telekom and T-Mobile US’ independent shareholders is just the first hurdle. The Federal Communications Commission and the Justice Department will both need to approve a deal that involves the combination of the nation’s No. 3 and No. 4 carriers.
A combined Sprint/T-Mobile US would have almost as many subscribers as AT&T Mobility, and would have more spectrum in large markets than either AT&T Mobility or Verizon Wireless, mostly thanks to Sprint’s vast 2.5 GHz spectrum holdings. Researchers at Moffett Nathanson report that a combined Sprint/T-Mobile US would own an average of 291 megahertz of spectrum in the nation’s top 100 markets.
One metric that regulators use to measure competition in an industry is the Herfindahl-Hirschman index. A Herfindahl-Hirschman index level above 2,500 signifies concentration in an industry. The wireless industry has been above 2,500 since 2009. The scuttled AT&T/T-Mobile USA merger would have boosted the index to 3,109, and a combination of Sprint and T-Mobile US would boost the index to 3,151, according to Moffett Nathanson.
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