Analysts: With Iliad M&A off the table, T-Mobile can focus on its own business

Now that French Internet and mobile company Iliad has dropped its pursuit of T-Mobile US (NYSE:TMUS), it seems likely that T-Mobile will continue as an independent entity and a unit of Deutsche Telekom for the foreseeable future. Financial analysts seem to think that's great news for T-Mobile, which has had strong momentum in the market.

Iliad dropped its acquisition play after it said DT rejected an improved offer for 67 percent of T-Mobile that valued the carrier at $36 per share. However, Iliad's stock rose as much as 13 percent in trading in Paris after it dropped its bid for T-Mobile in order to concentrate on growing in the French market.

For its part, the action leaves T-Mobile to concentrate on the U.S. market. Already, 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.

T-Mobile has been taking market share away from its larger rivals, especially Sprint (NYSE: S), thanks to lower prices, aggressive marketing and deals to pay off customers' early termination fees when they switch to T-Mobile and trade in their phones. Following the collapse of merger talks between Sprint and T-Mobile this summer, Sprint under new CEO Marcelo Claure has cut prices on individual plans and introduced new shared data plans. However, for the time being, T-Mobile is on a solid run.

"They're doing a really nice job competing against the incumbent carriers right now," Pacific Crest Securities analyst Michael Bowen told Bloomberg. "Their offers are resonating with subscribers, and I think they're better off independent at this point."

An unnamed source familiar with Deutsche Telekom's thinking told Reuters the company preferred to keep its U.S. business longer since it did not think Iliad, as a new entrant to the U.S. market, could run the business better than T-Mobile's current management, led by CEO John Legere.

T-Mobile and DT, which owns 66 percent of T-Mobile, declined to comment, according to Reuters.

"Now that you've flushed out that M&A speculation, the stock is actually attractive now on fundamentals," Macquarie Securities analyst Kevin Smithen told Bloomberg. "They're doing very, very well in the current environment."

Other analysts agreed. "We felt that even in the case of a Sprint merger that T-Mobile was probably better off on its own near term," Jefferies analyst Mike McCormack told FierceWireless.

McCormack said at some point in the future it would make sense for Sprint and T-Mobile to merge. However, he said T-Mobile is doing well right now on its own and "we didn't feel like there was any need for DT to rush out of" the U.S. market. He added that T-Mobile is a clear growth driver in DT's wider carrier portfolio. Indeed, as Bloomberg notes, selling T-Mobile would eliminate one-third of DT's revenue.

"M&A being on the back burner could be a good thing" for T-Mobile, McCormack said, letting T-Mobile focus on executing its business plans. Legere recently said he was "sick and tired" of the constant M&A speculation.

Yet some analysts think that T-Mobile might still be a takeover target, and there is continued speculation that Dish Network (NASDAQ: DISH) might make an offer for T-Mobile after the conclusion of the AWS-3 spectrum auction, which starts Nov. 13. Dish Chairman Charlie Ergen has publicly said he would entertain a transaction with T-Mobile but that the company is focused on the AWS-3 auction. In any event, U.S. companies that have registered for the auction cannot discuss deals at this point because of anti-collusion rules; both T-Mobile and Dish have registered to bid in the auction.

The Credit Suisse analysts wrote that T-Mobile "remains a potential acquisition target. Given Sprint 's concentrated ownership and the size of AT&T and Verizon, we believe T Mobile is the only large scale acquisition candidate in the U.S." They added that "Ergen could evaluate a potential bid following the auction. We also feel Sprint could revisit a bid for T-Mobile under a new administration, but this is a couple years away at best."

McCormack said it's possible Ergen will take another look at a deal with T-Mobile, but said that the market is much more aggressive and unpredictable than it has been in years, and it's unclear if Ergen wants to jump directly into that competition by buying or merging with T-Mobile.

"I don't believe you're going to see Ergen act in a significant way in the next year or two," he said.

For more:
- see these two separate Bloomberg articles
- see this Reuters article
- see this third Bloomberg article

Related Articles:
Iliad drops bid for T-Mobile
Analyst: DT likely to reject an improved offer from Iliad for T-Mobile
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

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