Analysts at LightShed Partners urged T-Mobile and Sprint parent SoftBank Group to deny media reports Monday that T-Mobile CEO John Legere is in talks to take over as head of coworking startup WeWork, saying it complicates the carriers’ upcoming merger trial with state attorneys general.
“Nevertheless, this story makes little sense to us and we think T-Mobile and SoftBank should deny its veracity, immediately,” wrote LightShed Partners’ Walter Piecyk and Joe Galone in a Monday research note.
T-Mobile did not immediately respond to request for comment.
Former Sprint CEO Marcelo Claure last month was named executive chairman of troubled WeWork and it has been looking for a new chief executive after WeWork’s former CEO resigned following a botched IPO that saw the company’s value plummet. SoftBank has invested billions in WeWork and now owns a roughly 80% ownership stake since its October bailout. Claure, SoftBank’s operating chief, is also chairman at Sprint.
A story by the Los Angeles Times also reported that Legere had spoken with WeWork about the chief executive role, but sources stressed that the company intends to consider numerous candidates. Still, analysts indicated the reports are not a great look for a company nearing the finish line on a merger process that has already dragged on longer than expected.
“It’s hard not to see the obvious conflict of interest in Legere discussing a new employment opportunity with someone who is also acting as the counter-party in a renegotiation over the terms of a deal between the two companies, both of which have public minority shareholders,” wrote the analysts. “For that reason alone, T-Mobile should be denying the story.”
While pointing to both financial incentives for Legere and his qualifications for taking the position at WeWork, LightShed questioned the timing of the story, noting Legere would likely have interest from numerous companies once the Sprint deal is done and he’s led initial integration efforts.
A coalition of state attorneys general, including those representing New York and California, have sued to block T-Mobile and Sprint’s merger, with a trial slated to start Dec. 9. Just last week T-Mobile unveiled a trio of new pledges on the condition of merger approval, including free mobile service for first responders, home broadband for families with school-age children and a new low-cost $15 per month prepaid plan, in a push to win support for the deal.
On Friday, Arkansas was the latest state to agree to a settlement already reached with the U.S. Department of Justice.
“This report clearly complicates the trial with the State AGs,” the analysts wrote, adding that fact raises curiosity as to motivations of who would leak the story.
“It’s not favorable at all” for a news report of this kind to come out just weeks away from a trial that will decide the merger’s lingering fate, LightShed noted, and serves no benefit for T-Mobile, Sprint or their respective parent companies to leak the information.
“T-Mobile should deny the report. In fact, given the risks it has added to the Sprint deal, SoftBank should deny it as well.”
The analysts pointed to both Legere’s personal financial incentives to get the deal done, as well as the result of bailing SoftBank out of its struggling Sprint investment, but indicated it opens the door for uncomfortable questions at trial.
“This news will enable the State AGs to ask why Legere, the Maverick of the wireless industry who has promised all the price cuts, might be leaving in 2 months,” wrote Piecyk and Galone.
The analysts acknowledged that SoftBank would certainly want Legere, who has a proven track record and could help quickly resolve the trouble and embarrassment WeWork has created for its parent company and Softbank CEO Masayoshi Son.
At T-Mobile’s uncarrier event last week, Legere responded to a question about guarantees to remain in charge to oversee execution of the merger pledges and impacts of potential new leadership by saying the New T-Mobile’s plans and culture run deep, adding “Mike and I…and this full team are very committed to this as is our Board.”
T-Mobile and Sprint’s merger agreement effectively expired on Nov. 1, which was the agreed upon long-stop date (18 months in) in the business combination arrangement (BCA), meaning either party could walk away before a new date is set. Legere said last week that the partners are in discussions for a new long-stop date, and conversations about terms could include price.
Piecyk dismissed suggestions that SoftBank is using the potential hiring of Legere at WeWork as part of their negotiations with Deutsche Telekom.
“That also makes no sense to us as the report only increases the peril of Sprint’s sale to T-Mobile, the absolute worst case scenario for SoftBank,” they wrote.
Sprint in its most recent quarter reported losing nearly 300,000 phone subscribers, alongside profit losses and revenue declines.