Reuters reported yesterday that a merger between Sprint and T-Mobile is entering the final stretch and could be announced as early as next week. And analysts parsing the news believe that Sprint and its 2.5 GHz spectrum may be squeezing more value out of the transaction.
Specifically, Reuters reported that, citing unnamed sources, T-Mobile’s parent Deutsche Telekom is in the process of finalizing the debt financing it will need to fund the agreement. And that Sprint parent SoftBank and Deutsche Telekom are negotiating how they will exercise voting control over the combined company.
But a key line in the article stated that T-Mobile parent Deutsche Telekom would consolidate the combined company on its books “even without owning a majority stake.” Indeed, a new Reuters report this morning said Deutsche Telekom would own 40% of the combined company. That’s noteworthy considering SoftBank’s Masayoshi Son reportedly walked away from previous Sprint/T-Mobile merger negotiations in November because he wouldn’t have enough control over the combined entity.
If Deutsche Telekom didn’t own a majority stake, “it would challenge the accepted belief that DT (which owns 63% of TMUS) would need to own the majority. If this was the case, and the assumed ratio was paid-it would value S no more than ~ $6. If the ratio is the same-but DT is not the majority owner of the stock-then that would imply S would be valued at a higher price,” wrote the analysts at Wells Fargo in a note to investors shortly after the initial Reuters article was published.
Further, the Wells Fargo analysts argued that Sprint’s 2.5 GHz spectrum holdings may be gaining value as the U.S. wireless industry rushes toward 5G launches later this year.
“We also believe the value of the 2.5GHz spectrum has improved since last Fall as more of the 5G ecosystem seems to be evolving over the high-band world,” the analysts wrote. “This likely will only build going into the CBRS 3.5GHz auction (which some think could come this year). As we have written, there are many interested parties in this spectrum, including wireless carriers, cable and technology players. If 3.5GHz becomes a popular party-then 2.5GHz (which brings in a larger channel and is licensed) could become even more interesting.”
Of course, a Sprint merger with T-Mobile may not pan out—the companies have held merger negotiations several times during recent years, and federal regulators may move against a merger transaction.