Analysts: T-Mobile wants a partner with U.S. spectrum, customers

T-Mobile US (NYSE:TMUS) would strike an M&A deal with another company only if they had U.S. spectrum, had a U.S. customer base and offered "favorable financial terms," according to financial analysts.

Analysts from Jefferies met Monday with the T-Mobile investor-relations team, and a key takeaway from the meeting was that those are the criteria that T-Mobile's management is using to evaluate any deals. "Management believes the company has a lot of potential options as it relates to M&A activity," Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note.

"In this respect, and in our view, a deal with Iliad appears less likely given the lack of domestic spectrum and customers," they added. "Dish also does not necessarily fully satisfy the criteria, but offers a more compelling opportunity given its spectrum holdings, and video customer base."

T-Mobile recently acknowledged that French mobile and Internet company Iliad is still interested in pursuing a deal for T-Mobile. Iliad CFO Thomas Reynaud has said the company might make an improved offer by working with unnamed partners. In late July Iliad made a $15 billion bid for 56.6 percent of T-Mobile, valuing the carrier at $33 per share. T-Mobile parent Deutsche Telekom rejected that offer as too low.

There has also been 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.

T-Mobile CEO John Legere said at an investor conference last week that he knows the company is a potential takeover target but that T-Mobile has options. "We take the interest in T-Mobile--which isn't just them [Iliad], it's many different companies--as flattering," he said. "I think that will continue."

"What we are doing, we are constantly looking at multiple paths," Legere continued. "One is a very strong, vibrant, stand-alone business. We also look at the various trends in the industry and ways that we could do things inorganically." He said T-Mobile might partner or combine with another company to add scale but gave no indication about what those deals might entail. "We're playing from a position of strength," he added.

Meanwhile, the Jefferies analysts wrote that "despite a perceived price war, management is comfortable with the current pricing environment and believes that recent Sprint actions were rational."

In the past month Sprint (NYSE: S) has slashed pricing for individual customers to $60 a month for a plan with unlimited voice, texting and data, $20 cheaper than the comparable T-Mobile plan. Sprint has also introduced shared data plans for families with data buckets that are twice the size of those offered by Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) at the same prices.

"While porting ratios remain favorable against industry peers, management noted that recent Sprint offers could have a modest impact," the analysts added. "TMUS expects to maintain a speed advantage given its LTE spectrum position and remains comfortable with its unlimited data offer, though acknowledged such data plans may not be sustainable longer-term given traffic loading. The company is not interested in following peers with a shared data plan, believing that its current mix and match strategy is more consumer friendly."

Legere hinted at such a strategy last week, indicating that T-Mobile might charge more for higher data usage. However, the carrier has made no plans to change prices.

The analysts also noted that T-Mobile recently raised $3 billion in debt, which the company's management "believes provides ample liquidity through 2014, including its potential spectrum needs." T-Mobile may also seek to raise another $5 billion worth of debt to fund spectrum purchases in next year's planned incentive auction of 600 MHz broadcast TV spectrum, the analysts wrote.

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T-Mobile to raise new debt, likely for AWS-3 spectrum auction
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