Exclusive: SoftBank
willing to cede control of Sprint to entice T-Mobile -
sources
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[February 18, 2017]
By Liana B. Baker
NEW YORK (Reuters) - Japan's SoftBank Group
Corp <9984.T> is prepared to give up control of Sprint Corp <S.N> to
Deutsche Telekom AG's <DTEGn.DE> T-Mobile US Inc <TMUS.O> to clinch a
merger of the two U.S. wireless carriers, according to people familiar
with the matter.
SoftBank has not yet approached Deutsche Telekom to discuss any deal
because the U.S. Federal Communications Commission has imposed strict
anti-collusion rules that ban discussions between rivals during an
ongoing auction of airwaves.
After the auction ends in April, the two parties are expected to begin
negotiations, the sources told Reuters this week.
Two and a half years ago, SoftBank abandoned talks to acquire T-Mobile
for Sprint amid opposition from U.S. antitrust regulators. That deal
would have put SoftBank in control of the merged company, with Deutsche
Telekom becoming a minority shareholder.
T-Mobile was worth around $30 billion at the time, but its market value
has since risen to more than $50 billion as it overtook Sprint as the
No. 3 wireless carrier by subscribers. Sprint's market value is around
$36 billion, roughly the same as in 2014.
Deutsche Telekom Chief Executive Tim Hoettges has said in recent months
that the German company is no longer willing to part with T-Mobile,
prompting SoftBank to explore a new strategy towards a potential
combination, the people said. Deutsche Telekom owns about 65 percent of
T-Mobile.
SoftBank, which owns about 83 percent of Sprint, has been frustrated
with its inability to grow significantly on its own in the U.S market,
which is dominated by Verizon Communications Inc <VZ.N> and AT&T Inc
<T.N>, the two largest U.S. carriers.
While SoftBank is still open to discussing other options, it is now
willing to surrender control of Sprint and retain a minority stake in a
merger with T-Mobile, the sources said. They asked not to be identified
because the deliberations are confidential.
The Reuters report sent shares of T-Mobile surging as much as 7.9
percent before they eased back to close up 5.5 percent at $63.92. Shares
of Sprint ended 3.3 percent higher at $9.30.
Investors have said a merger between T-Mobile and Sprint, ranked third
and fourth respectively, would still face antitrust challenges, but made
strategic sense as the industry moves to fifth-generation wireless
technology.
Carriers will need to spend billions of dollars to upgrade to 5G
networks that promise to be 10 times to 100 times faster than current
speeds.
SoftBank, Sprint, Deutsche Telekom and T-Mobile all declined to comment.
"We may buy, we may sell. Maybe a simple merger, we may be dealing with
T-Mobile, we may be dealing with totally different people, different
company," SoftBank Chief Executive Masayoshi Son told analysts on the
company's latest quarterly earnings call earlier this month.
With the advent of 5G, Deutsche Telekom may receive offers for T-Mobile
from other U.S. companies, such as DISH Network Corp <DISH.O> and
Comcast Corp <CMCSA.O>. Sprint could also be an acquisition target for
other companies, the sources said.
Dish declined to comment and Comcast did not immediately respond to a
request for comment.
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The logo of U.S. mobile network operator Sprint Corp is seen at a
Sprint store in San Marcos, California August 3, 2015. REUTERS/Mike
Blake /File Photo
DISCOUNTING PLANS
Under CEO John Legere, T-Mobile has rolled out unlimited data plans and
international roaming packages. Combined with aggressive marketing, this has
boosted T-Mobile customer base at the expense of its rivals.
T-Mobile said it had 71.5 million total customers while Sprint had 59.5 million
at the end of 2016.
T-Mobile is now almost as big as Deutsche Telekom's German business. "We are not
in the mood of selling the business," Hoettges told investors last November.
While Sprint's customer base has also grown under CEO Marcelo Claure and
financials have improved, the growth was primarily driven by heavy price
discounts. Despite new investment, the company's network is still viewed by many
consumers as weaker than its rivals.
Reuters could not determine how much of a premium SoftBank may want Deutsche
Telekom to pay for control of Sprint.
Barclays analysts wrote in a note in December that a merger of T-Mobile and
Sprint could result in $25 billion to $30 billion in synergies but said, "it is
not imminently clear to us that the various regulatory agencies would reverse
course having already blessed the outcome of a four-player market."
The FCC and the U.S. Department of Justice sent strong messages in 2014 that
they did not want Verizon, AT&T, Sprint and T-Mobile to merge among themselves.
Since then, AT&T acquired satellite television provider DirecTV and signed an
agreement to buy media giant Time Warner Inc <TWX.N>, though that deal is still
under regulatory review and has attracted criticism from U.S. President Donald
Trump. Verizon has also been exploring other acquisitions.
Antitrust experts said it was difficult to predict how the Trump administration
would view a T-Mobile-Sprint merger since key antitrust appointments at the
Justice Department have not been made. It is also not clear how such a
combination would be viewed by the FCC, whose new chairman Ajit Pai is viewed as
more business-friendly than his predecessor.
"I am of the camp that that will not happen even in a Trump administration,"
Christopher Marangi, co-chief investment officer at GAMCO Investors Inc, said on
the prospects of a T-Mobile-Sprint combination. "That kind of merger means lots
of job cuts in the U.S."
Craig Moffett, an analyst at MoffettNathanson, said price wars between Sprint
and T-Mobile have driven down overall wireless prices for consumers.
"Antitrust regulators could well argue that this is precisely the dynamic they
would want to preserve," Moffett added.
Son has said he expects his company to benefit from Trump's promised
deregulation of the U.S. economy. After meeting Trump in early December, Son
pledged to invest $50 billion and create 50,000 jobs in the United States.
(Reporting by Liana B. Baker in New York; Additional reporting by Sophie Sassard
in London, Harro Ten Wolde and Arno Schuetze in Frankfurt, Anjali Athavaley in
New York and Diane Bartz in Washington; Editing by Greg Roumeliotis and Tiffany
Wu)
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