Analyst: DT likely to reject an improved offer from Iliad for T-Mobile

T-Mobile US (NYSE:TMUS) parent Deutsche Telekom is unlikely to accept a revised $35 per share offer from French Internet and mobile firm Iliad if Iliad were to make such an offer, according to a new report from a financial analyst.

In a research note, Macquarie Capital analyst Kevin Smithen wrote that "a $35 bid by Iliad is possible but is likely to be turned down by T-Mo's board, especially given the choppier high-yield financing market."

Even if an improved offer is made, Smithen wrote that DT's management does not want to sell T-Mobile at $35 per share "given T-Mo's current momentum and potential for other, better-capitalized bidders down the road. In our opinion, investors should NOT own T-Mo for any M&A over at least the next two years."

In late July, Iliad made its initial $15 billion bid for 56.6 percent of T-Mobile, valuing the carrier at $33 per share, which DT was too low. According to a recent Bloomberg report, which cited unnamed sources familiar with the matter, Iliad now plans to price its offer at $33 per share but it will be for a "significantly larger" stake in T-Mobile. Iliad, controlled by billionaire entrepreneur Xavier Niel, has reportedly set a deadline of mid-October to either make an improved offer to take control of T-Mobile or abandon its pursuit.

T-Mobile reported that August was its best month ever for U.S. postpaid subscriber additions and analysts expect it to report strong third-quarter results, with that momentum carrying over into the fourth quarter.

Looking more broadly at T-Mobile, Smithen wrote that testing the performance of a Samsung Galaxy S5 on T-Mobile's network around the country has left him "pleased with the performance of T-Mo's LTE network in most cities. While suburban coverage continues to be an issue, we believe that T-Mo is now on par with VZ in most urban markets."

Smithen also touched on T-Mobile's work to integrate MetroPCS, which it acquired last year. T-Mobile has already shut down the MetroPCS CDMA network in Boston, Hartford, Conn., and Las Vegas, and has been transitioning MetroPCS customers from CDMA to T-Mobile's GSM/HSPA+/LTE network. The carrier plans to shut down MetroPCS' CDMA network in Philadelphia by the end of this year. 

Smithen wrote that he expects T-Mobile will realize $500 million to $600 million in annual operating expenses synergies between the second quarter of 2014 and the fourth quarter of 2015 as a result of the company's decommissioning of MetroPCS' CDMA cell sites. "Three markets have been shut to date and we expect the company to accelerate the closing of one or two more by year-end," he wrote. "This is likely to cause a sequential improvement in EBITDA in Q4. At the same time, we think the Iliad cost savings comments have T-Mo's mgmt. very focused on attacking its cost structure."

Related Articles:
Analysts: T-Mobile likely to continue strong subscriber growth into Q4
Analysts: Verizon likely to lead in Q3 subscriber additions while Sprint struggles to regain momentum
T-Mobile's Legere dismisses flood of M&A rumors as 'craziness'
Report: Iliad prepares to bid for a larger stake in T-Mobile
Report: Iliad sets deadline of mid-October to make improved T-Mobile bid

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