Report: SoftBank starts direct talks with DT on Sprint/T-Mobile deal

Sprint (NYSE:S) parent SoftBank has engaged in direct talks with T-Mobile US (NYSE:TMUS) parent Deutsche Telekom to try to iron out a deal between Sprint and T-Mobile, according to a Bloomberg report.

The report, which cited unnamed sources familiar with the matter, is the latest in a series of reports that indicate talks are heating up on a deal to combine the No. 3 and 4 U.S. operators. Last week the Wall Street Journal, which also cited unidentified sources close to the matter, reported that at least two banks have provided Sprint with proposals for financing a takeover of T-Mobile.

Sprint and T-Mobile declined to comment, according to the report.

According to Bloomberg, while SoftBank has assurances from banks that financing for a transaction will be ready, it could still take months to strike a deal. The companies are said to be hammering out issues that include how much cash and stock SoftBank will pay for Deutsche Telekom's 67 percent stake in T-Mobile, and how Sprint and T-Mobile will be integrated.

Deutsche Telekom wants an all-cash offer for T-Mobile, which has a market value of about $26 billion, and SoftBank is working to finance a deal to provide as much cash as possible. SoftBank CEO Masayoshi Son is seeking to borrow about $20 billion from banks including Goldman Sachs Group, Mizuho Bank and Credit Suisse, Bloomberg noted, adding that Sprint would take on any debt relating to the deal.

Meanwhile, DT CEO Timotheus Hoettges said the German firm has recouped its investment in T-Mobile US with an increase of the unit's value compensating for a $10 billion writedown on the asset in 2012. "We already have increased the value to what it was at the sale," Hoettges told Bloomberg in Munich on Sunday, where he was attending the annual DLD conference for entrepreneurs and technology companies. "That means with 67 percent of a company that's worth $42 billion, we're already back at the value of the AT&T deal."

Hoettges declined to comment on the deal rumors. "The U.S. is a great story for me," he said. "Truly, when you think how things came together, then I'm fairly proud--together with all those involved--of what we created there."

Any deal between Sprint and T-Mobile would face an uphill battle with regulators, analysts have said. Regulators at both the FCC and Department of Justice have indicated that they would prefer to maintain four national operators. T-Mobile seems to have revived itself with lower pricing, aggressive "uncarrier" marketing and plans to pay customers $650 to cover their early termination fees if they switch and trade in their devices, for example. Further, it seems unlikely the FCC would bless a merger that would reshape the industry before crucial spectrum auctions scheduled to start next year.

New Street Research analyst Jonathan Chaplin has recently argued that Sprint and T-Mobile could get a deal through if Sprint agreed to host Dish Network's (NASDAQ: DISH) spectrum on its network infrastructure. "The companies could argue that this improves competition," Chaplin told Bloomberg. "Sprint and T-Mobile, who have both been disruptive, would now have comparable scale to Verizon and AT&T, allowing them to price even more aggressively. In addition, by passing on low network costs to Dish, they would enable Dish to price their service aggressively and take share also."

For more:
- see this Bloomberg article
- see this separate Bloomberg article

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T-Mobile's Legere doesn't rule out Sprint deal, but also casts doubt on it
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