T-Mobile to acquire Sprint, not the other way around, says analyst firm

A merger between T-Mobile and Sprint would create the nation's second-largest wireless carrier in terms of market share. Image: Wells Fargo.

It will be T-Mobile and its parent company Deutsche Telekom that acquire Sprint, predicted the analysts at Wall Street research firm Wells Fargo. That’s a change from the firm’s previous calculation that Sprint and its parent company SoftBank would be the buyer in a transaction between the nation’s third and fourth largest wireless network operators.

“In December 2016, we published a note titled ‘S/TMUS Merger in a Trump Administration’ in which we assumed S would be the controlling shareholder and acquire TMUS for $93.4B in total enterprise value. Based on recent commentary from both Deutsche Telekom (DT) and TMUS, we now believe TMUS/DT should be the perceived buyer with Sprint/Softbank retaining a minority position in the combined entity,” the analysts wrote in a new research report issued to investors this morning.

RelatedWells Fargo: Sprint could acquire T-Mobile for $93.4B

Importantly, the Wells Fargo analysts also offered predictions for how the transaction might be structured. Specifically, the firm said it expects the financing mix to be 70% common equity and 30% debt (roughly $30.3 billion in common equity and $12.97 billion in debt), and that T-Mobile will assume Sprint’s $40.9 billion in gross debt.

“This estimates that TMUS will pay $10.84/share for Sprint, or a 28% premium to its latest price,” the analysts wrote.

Recent commentary by executives from T-Mobile parent Deutsche Telekom seem to underscore T-Mobile’s potential role as the buyer in any transaction. "We decide what, when and how," Deutsche Telekom CEO Tim Hoettges said this week of T-Mobile’s M&A prospects in the United States, as noted by Reuters. DT owns 65% of T-Mobile.

Further, the Wells Fargo analysts also noted that recent comments from T-Mobile and Sprint executives appear to indicate a growing interest in a merger between the companies. Specifically, T-Mobile executives recently have called Sprint’s 2.5 GHz spectrum holdings a “treasure trove that you could do amazing things with.”

The Wells Fargo analysts explained that such statements represent a change in T-Mobile’s stated attitude toward Sprint’s vast 2.5 GHz spectrum holdings.

Related: In 2017, how much low-, mid- and high-band spectrum do Verizon, AT&T, T-Mobile, Sprint and Dish own - and where?

Indeed, virtually all the executives that would be involved in merger discussions have voiced a positive view of a T-Mobile/Sprint tie-up. For example, in comments this month at an investor conference, Sprint CEO Marcelo Claure hinted that a merger between Sprint and T-Mobile would create a significant competitive player.

“Having a company almost the size of AT&T and Verizon, in which you combine the two mavericks and you create a turbocharged maverick that will continue to fight for consumers, but now with a different scale, the synergies are pretty interesting,” he said.

Separately, T-Mobile CFO Braxton Carter said that T-Mobile would hold talks with Sprint for a possible transaction.

“It’s not a question of will talks happen; of course they’ll happen,” Carter said last week. “There’s a huge prize when you talk about Sprint, and that’s true, hard synergies.”