Billionaire Paulson backs a Sprint/T-Mobile deal

Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) reportedly won't announce any kind of merger deal until August, but the potential combination has a major backer in billionaire hedge fund manager John Paulson.

Paulson is a major shareholder in both carriers so it's not surprising that he's a cheerleader for a deal, which would likely face high hurdles in getting approved by regulators. As the Wall Street Journal notes, according to FactSet, Paulson is the third-largest shareholder in Sprint and the fourth-largest in T-Mobile, with a combined investment of almost $1.1 billion.

SoftBank controls 80 percent of Sprint and Deutsche Telekom has a 67 percent stake in T-Mobile. However, Paulson was a key player in 2013 in applying pressure to get SoftBank to increase its price for Sprint and T-Mobile to raise its offer for MetroPCS. He could have a role to play in getting a deal done between Sprint and T-Mobile.

A recent Bloomberg report added that while Sprint and T-Mobile have agreed to the broad terms of a merger, the transaction isn't likely to be announced until August, a month later than initially expected. Sprint would offer about $40 per share in stock and cash for T-Mobile in a deal worth $32 billion, according to the report, which cited unnamed sources.

However, regulators at the Department of Justice and FCC have expressed skepticism at removing a national wireless player from the market, which AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ) dominate in terms of subscribers, profits and margins.

Paulson said he thinks a Sprint/T-Mobile deal will have many benefits. "Clearly competition will increase if you allow them to merge. It will improve service and lower prices," he said in an interview with the Journal. "I think regulators will be open-minded."

Paulson noted that European Union regulators have recently allowed mobile consolidation to go forward in Germany and Ireland, though both deals have conditions that are intended to ensure competition remains strong.

In Europe, Telefónica Deutschland got control of KPN's E-Plus only after it committed to sell up to 30 percent of the merged company's network capacity to up to three MVNOs and to divest spectrum and some assets to a new full network operator, or to the trio of MVNOs. Separately, Hutchison Whampoa's 3 Ireland acquired Telefónica Ireland after agreeing to ensure short-term entry of two MVNOs, with an option for one of them to become a full operator by acquiring spectrum at a later date.

In terms of a potential Sprint/T-Mobile deal, Paulson said he isn't likely to raise complaints about the terms of the deal. He said if Sprint offered something in the high $30s to low $40s per share for T-Mobile, that would be "reasonable."

"The big value isn't the premium, the big value is the synergies from the deal," he said. Morgan Stanley recently estimated annual cost savings from the merger of at least $3 billion, according to the Journal.

For more:
- see this WSJ article (sub. req.)

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