Illiad Bid for T-Mobile US Is Not Yet 'Dead'

Illiad, which has made a bid to buy about 56 percent of Deutsche Telekom’s T-Mobile US business, will have to revise its bid to gain serious attention from Deutsche Telekom, most predict. But it would be premature to argue Deutsche Telekom already has rejected the deal, summarily.

Although, that’s a reasonable initial outcome for Illiad, considered a long shot to upend Sprint’s expected bid for T-Mobile US., considering that some considered the bid would simply be refused, out of hand.

The current Illiad bid, outside observers generally agree, represents too small a price, compared to the expected Sprint offer to buy all of T-Mobile US.

The Illiad bid represented a price of $33 a share, where the expected Sprint offer is valued at about $40 a share.

Under either of the current proposals, Deutsche Teleko would retain a stake in T-Mobile US. Deutsche Telekom, which presently owns 66.7 percent of T-Mobile, would retain a 29 percent stake in T-Mobile if it sells to Iliad.

Were T-Mobile US to sell instead to Sprint, it would probably retain an ownership stake of about 15 percent, some estimate.

Some observers expect a revised Illiad bid of perhaps $37 a share. Though that offer might still offer fewer synergies than a Sprint buyout, the regulatory risk, most likely would agree, is far less.

Though some think Sprint would gain regulatory approval to shrink the number of leading U.S. mobile providers to three, from four, the Illiad buy would leave the market unchanged, an outcome the U.S, Department of Justice has signaled it prefers.

On the other hand, the Sprint offer arguably adds facilities, spectrum and customer base, if the deal is approved. And that’s the catch. There is a high degree of uncertainty about such a prospect.

At least in the near term, even T-Mobile US CEO John Legere has said T-Mobile US does not need a transaction to grow. Long term, scale would be needed, but Legere has argued there are a number of ways scale could be achieved, other than a purchase of T-Mobile US by Sprint.

That is what one would expect a CEO to say. But it also arguably is true. There is another imponderable as well.

It isn’t so clear how well any buyer can rapidly adapt Sprint for a more-aggressive posture, as Sprint rarely is known for decisive, aggressive action. To be sure, Sprint has had other problems, such as its network modernization program and the impact of the Nextel network shutdown.

Access to capital also is an issue.

One reason Sprint has not been able to relatively rapidly launch a disruptive assault in the U.S. market, despite expectations SoftBank would do so, might be cultural. Sprint simply isn’t the sort of company known for aggressive, fast-moving behavior.  

And even a T-Mobile US-lead new company would face those same obstacles. An Illiad-owned T-Mobile US would not have to deal with that sort of issue. It is a “soft” issue, hard to quantify. But it is no less “real.”