Almost two years ago, SoftBank, a Japanese telecommunications and Internet corporation purchased a 70 percent share of Sprint. Roughly six months after the acquisition, there were announcements concerning the company’s plan to cut costs with layoffs and closures.
Overall, Sprint did not end 2013 on a particularly good note. Financially speaking, Sprint’s fourth quarter results had a net loss of $1 billion. Sprint also had an operating loss of $576 million. Oddly enough, this was seen as a 22 percent improvement year-over-year. I guess that I’ll never really understand finances!
Regardless of how Sprint ended 2013, you have to expect that when one company acquires another that some major changes are going to take place. Sprint looked like it was attempting to streamline itself and work its way back to being profitable, but was there another reason behind its efforts to cut some of what might be considered dead weight?
We have seen a lot of consolidation lately in the telecommunications industry. We know that AT&T is attempting to acquire TV operator DirecTV and there is a lot of controversy over Comcast trying to merge with Time Warner.
Shortly we may see a major acquisition. While there has been a lot of talk over the years of Sprint and T-Mobile joining forces each company has been preoccupied with a variety of other concerns, so it was always speculated to be nothing more than rumors.
Information, from a person familiar with this matter, said that Sprint has agreed to pay about $40 per share to acquire T-Mobile which would give it a valuation of over $32 billion. If the purchase goes through, we are looking at a merger between the third and fourth largest mobile network operators in the U.S.
An analyst at JP Morgan, Hannes Wittig feels that the offer of $40 per share is on the low end. He said "T-Mobile US should be worth more than that given that the synergies should exceed $20 billion…Somewhere in the high 40s would be more appropriate."
As I mentioned, SoftBank basically owns 70 percent of Sprint and to keep things straight, Deutsche Telekom owns 67 percent of T-Mobile. Before any real agreement can be reached both of these companies have to negotiate details, including financing and the termination fee to be paid should the merger get blocked by regulators.
You may recall that there was a lot of involvement from the U.S. federal government concerning SoftBank’s acquisition of Sprint. Whenever a company from a foreign country is involved with the purchase of U.S. based companies, you know that the U.S. government has to also be involved. In fact, analysts see the regulatory challenge as the biggest hurdle facing the companies since both the U.S. Federal Communications Commission (FCC) and Department of Justice (DOJ) have expressed a desire to have at least two more network operators competing against the market leaders AT&T and Verizon.
Three years ago regulators rejected AT&T's agreed $39 billion bid for T-Mobile US. This resulted in AT&T having to pay Deutsche Telekom, as T-Mobile's full owner, a reverse break-up fee of $6 billion in cash and U.S. mobile assets. If a similar situation should arise now, we would be looking at a breakup fee of over $1 billion. According to Bloomberg, Softbank is pushing for a termination fee of $1 billion, while Deutsche Telekom wants it to be more in the neighborhood of $3 billion.
You can see that unlike past rumors, this deal between Sprint and T-Mobile seems to be on the verge of actually happening. Keep in mind that not only do SoftBank and Deutsche Telekom have to agree on the terms they both have to wait and see what the U.S. regulators have to say.
An antitrust expert, who asked not to be named to protect business relationships, said "The regulatory agencies have tipped their hand and the parties know that. They must think that they have stronger arguments and they're willing to battle them out with the agencies. That has to be part of their calculus here."
Softbank Chairman Masayoshi Son has had a long-held desire to buy T-Mobile and merge it with Sprint. He has made no secret about this and the fact that he wants to create a carrier with the resources to upgrade its network and better compete with AT&T and Verizon.
Edited by
Maurice Nagle 
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